Gallery insolvency: what you need to know

What is insolvency?

Insolvency is when a business is unable to pay its debts with money or assets. Assets are property, products or valuable items.

Types of insolvency process include:

• Administration: where the aim is to sell the underlying business.
• Liquidation: where the gallery’s assets are broken up and sold to pay debts.
• Company voluntary arrangements: where the gallery renegotiates its debts.

Insolvency and galleries

The directors of the gallery must protect the interests of everyone owed money by putting the gallery into an insolvency process.

An independent professional, often a lawyer or accountant, manages the insolvency process for the gallery. This person is known as an insolvency practitioner.

On-consignment work held at the gallery

If your work is on consignment – the gallery intended to sell it for you – with an agreement where title (ownership) remains with you until sold, you still own the work. This is because it is not an asset that belongs to the gallery.

To get your work back:

1. Contact the insolvency practitioner managing the process for your gallery.
2. Tell them about your artwork, providing information to identify the artwork.
3. Get written confirmation from the insolvency practitioner that the artwork will be returned.

Debts or payments due to you

If you are owed money by the gallery, you are not able to take court proceedings for the recovery of the money. Instead you need to “prove” what you are owed, as part of the insolvency process. Complete a “proof of debt” form and include supporting documents. The insolvency practitioner will provide the form.

Asset sales

As the gallery is becoming insolvent, they may struggle to pay what they owe. But you may be paid a dividend (a percentage of what you are owed) if the insolvency practitioner recovers assets from the company, for example by collecting debts due to them, or selling property owned by them.

Creditors

From the gallery’s assets, expenses for the insolvency process are deducted. After that, a dividend is made to people the gallery owes, known as their ‘creditors’, whose proofs of debt have been accepted by the insolvency practitioner. This dividend may see you paid a percentage of what you were owed by the gallery.

Money for sales that took place before the gallery become insolvent

If the gallery has held the sale proceeds with their general funds, you will rank as an ‘unsecured creditor’.

The insolvency practitioner will generally pay off debts in a specific order. Employees rank highest, then ‘secured creditors’, like mortgage companies, come next. Unsecured creditors unfortunately rank quite low down on the list.

Contact with the gallery director

It’s recommended for all conversations to include the professional managing the insolvency process, the insolvency practitioner.

There may be times when they say it’s ok for the director to talk to you directly, but always check with the insolvency practitioner first.

Artist’s Resale Right (ARR) royalties

DACS collects ARR royalties on behalf of artists. DACS operates an ARR compliance programme that recovers unpaid ARR royalties from galleries and auction houses.

Signs of insolvency to look out for

It can be hard to tell if a gallery is in financial difficulty. Publicly available documents, like company records held by Companies House, do not necessarily provide all the information. Good indicators are:

• an inability to pay debts
• whether there are any court actions against them
• rumours in the art market and media

Agreements and insolvency

A consignment agreement states that the gallery can sell your artwork with your authority. You may be able to recover your artwork, as ownership of the artwork has not passed on to the gallery.

However, if your contract states the gallery owns the artwork before they sell it, the artwork becomes part of the gallery’s assets, which are dealt with in the insolvency process.

Oral contracts

If you only had an oral agreement, it’s very hard to prove the intention of both you and the gallery. Some things can help as evidence of an agreement, like payments into your account, or statements showing sales.

Exclusive representation agreements

Generally if a gallery goes out of business and can no longer perform any part of the contract, the agreement ends. You can go to another gallery for representation.

If the insolvency process means the gallery will continue business, you may need to formally terminate your agreement.

Ask the insolvency practitioner for information if insolvency the process is not clear to you.

What to include when you sign an agreement with a gallery

We recommend getting a written agreement with your gallery, and including these clauses:

• A clause to confirm your artworks are only consigned to the gallery. This is so that you remain the owner of the works.
• A clause stating that any sale proceeds are kept in a separate account away from the gallery’s general funds.
  
• A clause stating the agreement will terminate automatically if the gallery becomes insolvent.

Storage costs

Your artworks may be being held in storage, and the gallery may owe the storage company. The company might try to pass that debt on to you.

Whether they are liable to hold your work until the gallery’s debt has been paid depends on the nature of the agreement the gallery has with the warehouse.

Storage on your behalf

If, unusually, your artwork is being stored specifically as part of an agreement you had for them to do that for you, then the gallery has been acting as your agent.

In this case, the warehouse is entitled to hold on to the artwork until it receives payment from you. This is called exercising a ‘lien’.

Storage as part of usual gallery business practice

If the artwork is being stored for the gallery’s own commercial and business purposes, as is common, then the warehouse is not entitled to exercise a lien. It should release the works to you without payment.

More information

What is visual arts copyright?
Copyright and commission agreements