NEW YORK—Attorneys handling the Chapter 11 bankruptcy filing of Lawrence Salander and the now shuttered Salander-O’Reilly Galleries, on Manhattan’s Upper East Side, are urging the court to take immediate action to help sort out dozens of claims (ANL, 1/8/08, pp. 5-6).
On Feb. 1 three parties—attorneys for Salander, the official committee of unsecured creditors and secured lender First Republic Bank—submitted a joint motion asking the court to approve a proposed protocol for “assertion and resolution of claims of ownership to artworks” in Salander’s custody or control.
Their filing states, “It is imperative that [Salander] take immediate affirmative steps to obtain much-needed liquidity through asset sales. . . The normal claims process is simply not adequate in a case such as this one as the estate does not have the luxury of time.” According to the filing, without the immediate establishment of an effective reorganization process, Salander’s estate “will be unable to effectively administer the case and, most importantly, realize value for its assets for the benefit of the estate’s creditors”
The motion is aimed at determining ownership of thousands of artworks and other valuable properties currently held in the estate. While some works rightfully belong to the Salander estate, others have been claimed by various clients, artists and collectors—many of whom filed suit against Salander before the bankruptcy filing last November.
Salander-O’Reilly was shuttered and barred from doing further business by a New York state supreme court judge last October (ANL, 10/30/07, pp. 6-8), after the dealer and his gallery were besieged by creditors, clients and investors seeking the return of more than $80 million in artwork and funds they claimed were owed.
Salander also is the target of a criminal investigation by the office of Manhattan District Attorney Robert Morgenthau, who in October “impounded [Salander’s] books and records. The District Attorney has agreed to copy the . . . books and records and provide copies thereof” to Salander, a Feb. 1 court filing states.
Joseph Sarachek of Triax Capital Advisors, who was appointed chief restructuring officer (CRO) in the case, has been taking stock of the art and other properties related to the bankruptcy filing. As of mid-January, Sarachek reported, more than 4,200 items—including paintings, sculpture, antique furniture and rugs—had been inventoried at the gallery, as well as at Salander’s Manhattan townhouse and home in Millbrook, N.Y.
New Website Lists Inventoried Artworks
On an ongoing basis, court records reveal, Sarachek has been publishing a list of artworks on a Website (www.triaxcapitaladvisors.com/salander): The site is “password protected,” the filing states, “and the CRO will promptly provide a unique password to each party in interest that requests access to the Website, including all Art Claimants.”
The filing further requests that Salander, “the Debtor,” facilitate publication of the claims notice in three of five specified publications, including The New York Times and ARTnews (publisher of ARTnewsletter), among other entities. Notices in these publications, attorneys assert, “will be reviewed by the greatest number of parties that are likely to assert Art Claims.”
As ARTnewsletter went to press, the motion was scheduled to be heard on Feb. 27 in U.S. Bankruptcy Court for the Southern District of New York, by presiding judge Cecelia G. Morris.
Under the terms of the proposal a “working group,” consisting of representatives for Salander, First Republic Bank and the unsecured creditors’ committee, as well as an independent representative approved by the bankruptcy court, would be charged with analyzing each claim and determining whether there is an objection to it.
Claimants would be required to submit detailed information about the work itself (e.g., artist, title, medium, date), as well as the “factual basis for your art claim.” In cases where the working group unanimously agrees that the piece belongs to the claimant, he or she would be responsible for all aspects of retrieving it, including secure handling and shipping costs.
Alternately, where there are competing claims for a particular work, the proposal includes a provision for “non-binding mediation.”
In arguing for approval of the protocol, the filing asserts, “The Debtor’s Chapter 11 case was commenced in the midst of swirling allegations of fraud and questions regarding ownership of art. . . . If all Art Claimants were to assert ownership claims at this time without a structure in place for resolving those claims, the Debtor’s estate would be irreparably harmed due to . . . the distraction and cost of concurrently litigating numerous, often competing claims.”
Diana Adams, the U.S. trustee, objected to the motion, noting that the gallery has not yet “filed schedules of assets and liabilities or a statement of financial affairs.” Adams said the protocol failed to address the issue of how, or by whom, “a person not affiliated with the Committee, the Debtor or the Bank” will be nominated.
Adams further opposed the permanent retention of Sarachek as CRO. His appointment on an interim basis was approved last November. The CRO “is not in a position to provide the type of independent decision-making and oversight afforded by a trustee. The Court should not approve the retention on a permanent basis,” Adams contended. This matter was also scheduled for discussion at the Feb. 27 hearing.
In another matter relevant to the case, Judge Morris ruled, on Feb. 6, that Salander and his wife, Julie, can employ real estate brokers Leslie J. Garfield & Co. to seek a buyer for their Upper East Side Manhattan townhouse at an asking price of $25 million, court records note. Judge Morris ruled that granting the motion is “in the best interests of the Debtors, their estate and their creditors.”