Art market

Debt and legal troubles force Berry-Hill Galleries to file for bankruptcy

Christie’s is owed $14 million and there are over 100 other creditors

Hampered by debt, and facing mounting legal problems because of allegations that it rigged a Christie’s auction, Berry-Hill Galleries, a top New York dealer in American art, has filed for bankruptcy “to protect its business and customers”.

Berry-Hill Galleries and its wholly-owned subsidiary Coram filed for voluntary bankruptcy under Chapter 11 in Federal bankruptcy court on 8 December. When a company goes into Chapter 11, it continues to operate but tries to reorganise its business and return to profitability. A court must approve any significant business decisions.

Berry-Hill and Coram are owned by cousins James Berry Hill and Frederick Hill. In the court, the gallery’s chief restructuring officer, Alan M. Jacobs, said that the filings resulted from disputes with the gallery’s lenders and with the auction house Christie’s.

The trouble started at Christie’s American art sale in New York on 19 May 2005 which yielded $40.6 million. Doubts emerged over 43 works in the sale which the catalogue said were from “a private collection,” believed to be a divorcing couple. The disclosures allowed the owners to bid on their work. At the auction Berry-Hill Gallery bid on 21 paintings for the collection, apparently representing one member of the couple.

Immediately after the auction, observers speculated that Berry-Hill was bidding on its own consignments. Christie’s took the highly unusual step of holding on to 21 paintings (The Art Newspaper, November 2005, p.51).

Light was shed on what had happened on 24 August 2005 when a lawsuit was filed against Berry-Hill by the art loan company ACG Credit Company in New York State court. This alleged that Berry-Hill had defaulted on a secured loan of $20.1 million made by ACG in 2003. The gallery now owes ACG $19.7 million, says Mr Jacobs.

Berry-Hill had given ACG a security interest in all of the gallery’s art and assets against the loan, and this included art valued at over $50 million, and $14 million in mortgages on the gallery’s Manhattan real estate, says Mr Jacobs.

Berry-Hill “vigorously disputes all of ACG’s claims,” he adds, stating that the lawsuit was “a misguided attempt by an over-aggressive lender to put Berry-Hill out of business.”

In its August lawsuit, ACG wanted to make the debt immediately due, and to seize enough of Berry-Hill’s art to cover the money owed. By filing for bankruptcy, Berry-Hill is protected from ACG and its other creditors (see box).

On 10 December, Berry-Hill put out a statement announcing the bankruptcy while it tried to resolve disputes relating to the ACG lawsuit, which it said had “hampered Berry-Hill’s efforts to secure new financing,” creating “short term liquidity issues.”

The gallery’s assets “far exceed our liabilities,” the statement said. The gallery expected a “quick exit from Chapter 11” and would “continue to provide the same level of service to its valuable client base.” The lawsuit is now “stayed,” a spokesman for Berry-Hill added; when a firm goes bankrupt, creditors are prevented from enforcing their claims while it is in Chapter 11.

Christie’s, which is owed $14 million, stands at the top of the list of the 20 largest unsecured creditors, which include the art broker Timothy Sammons.

Mr Jacobs claimed that after the 19 May American Paintings auction, Christie’s refused to pay over $5 million to Berry-Hill and Coram. It also kept 28 paintings which either did not sell at the auction, or the sales of which were rescinded or cancelled by Christie’s or the buyer.

He argued that as the auction house froze the cash and art, Berry-Hill and Coram could not repay their loans, nor resell any of the art the auction house is still holding.

ACG has argued that one of the reasons Berry-Hill wanted to raise money was to buy George Bellows’ Kids, which it did at Sotheby’s in 2004 for $6.2 million.

On 16 May 2005, the Virginia Museum of Fine Arts announced that Bellows’ Kids would be part of a major gift from the museum by American art collectors James W. and Frances G. McGlothlin. On 5 December, Mr McGlothlin sued Berry-Hill, ACG and others, in Federal court in Virginia. In his filing, Mr McGlothlin is seeking a court declaration that his interest in Kids is unencumbered by any interest claimed by ACG, Berry-Hill, Coram or others, saying that he had bought a 50% interest in the painting from Berry-Hill.

Originally appeared in The Art Newspaper as 'Major New York gallery files for bankruptcy'

Appeared in The Art Newspaper Archive, 165 January 2006