The Covid-19 pandemic has created significant economic uncertainty, and the art world is no exception.  Unable to trade on regular terms, many businesses may now face insolvency.

As an artist, if your gallery becomes insolvent, what does this mean for you? How can you recover what you’re owed?

DACS has collaborated with insolvency expert Tim Bignell from the law firm Howard Kennedy to get answers to these questions, and more.

1. What is insolvency and what does it mean if my gallery becomes insolvent?

Insolvency is when a business, such as a gallery, is unable to pay its debts with money or assets (i.e. property, products or valuable items). The directors of the gallery must protect the interests of those who are owed money by putting the gallery into an insolvency process.

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 OR

  • Company voluntary arrangements: where the gallery renegotiates its debts.

2. If a gallery goes insolvent, who owns my work and can I take it back?

If your work is on consignment under an agreement where title (ownership) remains with the artist, the gallery does not own it.

You should be able to get your work back by contacting the person who is managing the insolvency process for the gallery, known as an Insolvency Practitioner (IP). The IP is an independent professional, often a lawyer or accountant who carries out the insolvency process.

Notify the IP about your artwork and provide information for the artwork to be identified. Get written confirmation from the IP that the artwork will be returned.

3. How can I claim what I am owed?

What you can claim from an insolvent gallery may depend on the type of insolvency and the type of relationship you had with them.
  • Recovering your artworks:
You should be able to get your artwork back by contacting the Insolvency Practitioner (the IP) – a professional who has been appointed to carry out the insolvency process. Notify them that your artwork is held by the gallery and provide any useful information you can. Get written confirmation from the IP that the artwork will be returned.
  • Recovering money owed by the gallery for sales of artwork
If you are owed money, you aren’t able to take court proceedings for the recovery of the money. You must instead "prove" you are owed, as part of the insolvency.

You must complete a form ("proof of debt") and include supporting documents. The Insolvency Practitioner (IP) will provide the form.
 
But the fact that the gallery is in insolvency means they may struggle to pay what they owe.

In circumstances where the insolvency practitioner recovers assets of the company (for example collection of debt or selling property) following the deduction of expenses a dividend is made to those creditors whose proofs of debt have been accepted by the IP.
  • Receiving 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, and to date DACS has successfully collected approximately £3m in unpaid royalties since 2015. Register with DACS for ARR here.

3. What about money for sales that took place before they become insolvent?

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

The professional managing the insolvency process, the Insolvency Practitioner (the IP) will generally pay off debts in a specific order.

For example employees will rank highest, then ‘secured creditors’, such as mortgage companies, come next. Unfortunately unsecured creditors rank quite low down on the list.

4. How will I be able to tell if my gallery is in financial difficulty?

It can be hard to tell, because publicly available information, like Companies House, won’t necessarily give the full picture. But good indicators are an inability to pay debts, whether there are any court actions against them, and rumours in the art market and media.

5. I signed an agreement with my gallery – what effect does this have if they become insolvent?

This depends on the type of contract you have with the gallery, and what it says.

Your contract may be a consignment agreement which should state that the gallery has the opportunity to sell your artwork with your authority. If you have a consignment agreement you may be able to recover your artwork, as ownership of the artwork has not passed on to the gallery.

If your contract states that the gallery own the artwork in order to sell it, the artwork becomes part of the gallery’s assets that are dealt with in the insolvency process.

6. I didn’t sign anything formal with my gallery – how does this affect me if they have become insolvent?

Whilst an oral agreement doesn’t necessarily mean you have no agreement with your gallery, it’s very hard to prove the intention of both you and the gallery. Some things can help as evidence of an agreement, such as payments into your account, or statements showing sales.

7. What should I be thinking about before I sign an agreement with a gallery? Are there any preliminary steps I can take in case insolvency happens in the future?

Firstly, it is always recommended to have a written agreement with your gallery. You may wish to include a clause that confirms your artworks are consigned to the gallery, i.e. that you remain the owner of the works. A further clause could state that any sale proceeds are kept in a separate account away from the gallery’s general funds. Finally you can add a clause to state that the agreement will terminate automatically if the gallery becomes insolvent.

8. I had an exclusive representation agreement with my gallery. If they’ve gone insolvent has this agreement been terminated and could I go to another gallery for representation?

Generally where the gallery goes out of business and therefore can no longer perform any part of the contract, the agreement would be brought to an end. If the insolvency process means the gallery will generally continue business, you may need to formally terminate your agreement.

9. The gallery has gone insolvent but the gallery director has been trying to contact me. Is it ok for me to speak to them or does this interrupt the insolvency process?

It is recommended that all conversations take place with the professional managing the insolvency process (the insolvency practitioner, or IP).

There may be times when the IP says it’s ok for the director to talk to you directly, but check with them first.

10. What can I do if my artworks are held in storage and the storage company wants to charge me for the storage fees because the gallery can no longer pay?

It depends on the nature of the agreement the gallery has with the warehouse.

If, unusually, your artwork was being stored as part of an agreement you had with the gallery to do that, then the gallery has been acting as your agent and the warehouse is entitled to hold on to the artwork until it receives payment from you. This is called exercising a "lien".

If the artwork is being stored for the gallery's own commercial and business purposes as is usually the case, then the warehouse is not entitled to exercise a lien and should release it to you without payment.



Disclaimer: This factsheet is offered as a general guide on insolvency issues that may affect artists or their estates. It does not represent an exhaustive account. It is not intended to offer legal advice and should not be relied on as such. We strongly recommend you seek specialist advice for any specific circumstances.