Dealers in New York can no longer use works consigned to them for sale by artists – or monies raised from their sale, beyond their own commissions – as debt collateral.
The change in law comes in a bid to
prevent galleries' creditors claiming works or funds in settlement
from dealers that in reality belong to artists.
Under amendments to the New York Arts
and Cultural Affairs Law (NYACAL) introduced in November last year,
consigned works or ensuing payments due to be paid out to
consignors must be treated as being held in trust and kept entirely
separate from galleries' own assets.
Those who fail to follow the new rules
risk criminal prosecution as well as having to pay costs and
damages to successful aggrieved parties in the event of being
Withers Worldwide, the international
law firm, highlight the changes in their latest Art and
Cultural Assets newsletter, explaining how New York State
followed 32 other states across the US in making the changes after
two high-profile gallery bankruptcy cases, Berry-Hill Galleries in
2005 and Salander-O'Reilly Galleries two years later.
NYACAL already held provision for
consignment protection when the two galleries went out of business,
explained Withers, but as dealers traditionally did not keep
separate client accounts, the galleries' creditors laid claim to
works on consignment and payments due to artists.
Matters were further complicated when
some creditors questioned whether the children of artists qualified
as heirs under the statute, where an artist had died and not left
their estate directly to their children.
"Unable to afford the legal firepower
required to refute this and other creative arguments, many of the
artists' children were impelled to buy back their artwork from the
Salander-O'Reilly Galleries bankruptcy estate," the law firm
The amendments now also make provision
for claims from artists' children to stop this happening