PSST! HEY BUDDY. WANNA BUY A PICASSO?
July 23, 2013
Detroit Institute of Art Collection for Sale?Want to Buy a Picasso? When the City of Detroit filed bankruptcy on July 18, it became the largest municipality ever to file bankruptcy in the history of the United States. The City has more than $18 billion in liabilities, and apparently little ability to fund a plan that would amortize this debt over any reasonable period. For this reason, the state-appointed emergency manager Kevyn Orr worked hard before filing bankruptcy to seek significant haircuts from the City’s investor-creditors, and employee-creditors. His efforts were unsuccessful, leading to the bankruptcy filing. However, the creditors have recently focused on one asset that might make matters easier: the very impressive art collection at the Detroit Institute of Art. In contrast to the status of most art museums in municipalities around the country, the collection of the Detroit Institute is not owned by a non-profit corporation or trust. Instead, it is apparently owned in large part by the City of Detroit directly. Moreover, it is widely considered to be one of the top ten broad-based fine art collections in the country, including gems by masters such as Rembrandt, Bruegel, and van Gogh. Experts have opined that the collection could bring from $2 – 2.5 billion on the auction block, especially given the recent, rampant inflation in the prices of fine art. Getting the paintings sold would not be an easy lift. First of all, under Chapter 9 of the United States Bankruptcy Code, creditors can’t force the City to sell a particular asset. They can, however, reject a proposed plan of reorganization that doesn’t include sufficient asset sales for payment. Mr. Orr agrees. A recent statement from his spokesman was that,
“[W]e haven’t taken any asset off the table. We can’t. We cannot negotiate in good faith with our creditors by taking assets off the table.”Although this clearly telegraphed that the paintings were fair game, the State of Michigan does not agree. The State Attorney General released a strongly worded opinion, ruling that the art is “held in trust for the public” and may not be sold to satisfy Detroit’s debt. The bankruptcy process is usually about allocating pain among the various interest groups in the bankruptcy. The Detroit case should be no different. At the end of the day, if the process works as it is supposed to, there are likely to be dents and chips on all the players in the case, including the art museum. Time will tell how this story turns out.