Fate of art works hangs in balance

EARLY last year, Cameron Hall penned a submission to the Cooper Review, arguing for the retention of art works as investments in self-managed superannuation portfolios.

By InvestSMART · 4 Aug 2011

By InvestSMART ·
4 Aug 2011

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EARLY last year, Cameron Hall penned a submission to the Cooper Review, arguing for the retention of art works as investments in self-managed superannuation portfolios.

The managing director of Smith & Hall was grounded in the self-managed super market, with a claimed business model of selling art works (at retail prices) to investors insuring and renting the works to corporate offices on the owners' behalf, and then delivering a rental return to the owners.

The reality, liquidator Sule Arnautovic of Jirsch Sutherland said this week, was the business was insolvent for at least a year before his appointment as administrator in October 2010.

He claims there was no strong demand for the thousands of art works to adorn corporate offices. In some cases, a single work of art was sold to multiple investors, with the funds used to pay existing owners their rental returns, Mr Arnautovic said.

He told BusinessDay he would shortly issue a statement of claim against Mr Hall for insolvent trading, relating to $200,000 in unpaid taxes by his company, International Art Holdings Pty Ltd, trading as Smith & Hall.

Earlier this year, Mr Hall told investors the financial downturn had caused the business to fail.

While the amount owed to creditors had not been finalised, an initial report indicated it could be $3.6 million.

Mr Arnautovic said he had sent his reports to the Director of Public Prosecutions and the Australian Securities and Investments Commission.

Nearly 1000 art works claimed to be worth up to $4 million were caught up in the collapse, as the liquidator and frustrated owners set about locating them.

Unclaimed art works, works where ownership was in dispute and works where the owners had refused to pay a storage levy, were auctioned by GraysOnline, realising $80,000. After deducting costs, there were no funds left for the owners, who now join the queue of creditors.

When BusinessDay first reported on the collapse of Smith & Hall in March, attempts were made to contact Mr Hall for comment, but none was forthcoming.

It is alleged artists who had been consigned on commission were not paid and are thousands of dollars out of pocket. Some have since been discussing with distressed buyers and lawyers as to who has legal title of the works.

Janet Storrier, wife of artist Tim Storrier, said she had been contacted by the police and had given a witness statement in May.

"The fact is government regulations in respect of art works in the super funds encourages these third party practices," she said. "It has been an unfortunate foray for a lot of people."

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Frequently Asked Questions about this Article…

What happened in the Smith & Hall collapse and why should investors care?

Smith & Hall (trading as International Art Holdings Pty Ltd) operated a business selling artworks to investors and promising rental returns. The company was insolvent at least a year before administrators were appointed in October 2010, and the collapse left investors, artists and creditors facing possible losses and disputes over ownership of nearly 1,000 artworks.

Who is handling the insolvency and what actions has the liquidator taken?

Liquidator Sule Arnautovic of Jirsch Sutherland is managing the insolvency. He has said the business traded while insolvent, plans to issue a statement of claim against the company director for insolvent trading related to unpaid taxes, and has referred reports to the Director of Public Prosecutions and the Australian Securities and Investments Commission (ASIC).

How did the Smith & Hall situation affect ownership of the artworks?

The liquidator reported that some single works were reportedly sold to multiple investors, creating ownership disputes. Nearly 1,000 artworks claimed to be worth up to $4 million were caught up in the collapse, with unclaimed or disputed works becoming subject to recovery and creditor processes.

Were any of the artworks sold to raise funds and what did auctions recover?

Yes. Unclaimed works, works with disputed ownership and pieces where owners refused to pay storage levies were auctioned by GraysOnline, realizing about $80,000. After costs were deducted there were no funds left to return to owners, who now join the queue of creditors.

What financial exposure did creditors and artists face in the Smith & Hall collapse?

An initial report indicated creditors’ claims could be about $3.6 million. Artists consigned on commission were reportedly not paid and were out of pocket by thousands of dollars, and distressed buyers and artists have been discussing legal title and recovery with lawyers.

Did the collapse involve unpaid taxes or alleged illegal trading?

The liquidator alleges insolvent trading and has flagged around $200,000 in unpaid taxes by International Art Holdings Pty Ltd (Smith & Hall). He intends to issue a statement of claim against the director relating to those unpaid taxes.

How does this case relate to artworks held inside self-managed super funds (SMSFs)?

Cameron Hall had submitted to the Cooper Review arguing for retention of artworks as SMSF investments, and the Smith & Hall collapse highlights risks when third‑party commercial practices (selling, insuring and renting artworks) are involved. The article notes concerns that government regulations may encourage third‑party practices that can create problems for SMSF investors.

What steps have authorities and affected people taken so far?

The liquidator has sent reports to the Director of Public Prosecutions and ASIC. Police have spoken to witnesses (including Janet Storrier, who gave a witness statement). Owners, artists and lawyers have been trying to locate works and sort out legal title and creditor claims.