NEW ORLEANS (ACNI) – The business & commerce landscape may be littered with the remains of companies that succumbed to the economic recession, but New Orleans Auction Galleries, which has filed for Chapter 11 bankruptcy, is assuring consignors they are not one of them.
On April 1, 2011, attorneys representing the revered Louisiana auction house petitioned the U.S. Bankruptcy Court for the Eastern District of Louisiana to allow New Orleans Auction Galleries (NOAG) protection against creditors under the provisions of Chapter 11 Bankruptcy law. Chapter 11 Bankruptcy enables a company to restructure its debt under the strict guidance of the court. Only the court can issue approval of outgoing payments or further incurrence of debt by the petitioner, once Chapter 11 has been filed.
Auction Central News spoke with Attorney Stewart F. Peck of Lugenbuhl, Wheaton, Peck, Rankin & Hubbard, the law firm representing NOAG in its bankruptcy proceedings. Attorney Peck said the proposed plan for the restructuring of NOAG’s debt would allow for all consignors, including those still owed from past auctions, to be paid in full.
“Everything is subject to court approval, but the prognosis is good,” Peck said. “There are a couple of really major friends out there who want to support us. A very well known local man, Eric Aschaffenburg, has stepped in and offered to be a ‘dip lender.’ He has formed a business, Aschaffenburg Assets LLC, that is prepared to make a $300,000 loan to New Orleans Auction Galleries. The loan will provide a cash injection to give us liquidity.” Peck said the loan is expected to receive final approval at a court hearing on April 28.
Ashaffenburg, NOAG’s angel lender, is from a prominent New Orleans family that owns The Ponchartrain, an independent living facility for well-heeled retirees that, in its earlier incarnation, was a hotel favored by celebrities such as Truman Capote, Frank Sinatra and Tennessee Williams.
Peck explained that, under the terms of the bankruptcy, consignors and vendors are to be classified separately. “Subject to court approval, consignors, including unpaid consignors from January auction, would be paid 100% of what they are owed. That’s what our goal is. Those who have consigned to the Major Estates Auction coming up this weekend (April 9-10) will be paid from monies kept segregated for that purpose only.”
As for its other vendors, Peck said all stand to benefit under the terms of the plan being proposed to the court. “There are around 200 vendors involved, and although it’s too early to say whether all of them will be paid 100% of what they are owed or not – since that is left entirely up to the court – our plan is for everyone to be paid.”
Although there would be a temptation to assume that Hurricane Katrina – which decimated Louisiana’s economy – set the stage for NOAG’s current financial challenges, Peck said that was not the case at all. “After Katrina, the gallery had big sales that generated a lot of revenue. The problems began with the collapse of Lehmann Brothers. The recession that followed hurt us a lot. People stopped buying luxury goods and fine things,” Peck said. “When you have fixed expenses and revenues drop, it hurts you. Now people are buying again. The auction gallery’s revenues have turned around.”
Peck said NOAG’s precarious financial situation came to a head when the company’s president, Jean Vidos, became seriously ill and was hospitalized for six weeks. In her absence, the attorney said, “the train went off the track. Money went out the door that shouldn’t have, and the bank froze our accounts, including one account that should not have been frozen.”
Fortunately, Vidos made a full recovery and returned to her executive post at the gallery two weeks ago. But upon her return Vidos realized a tough decision had to be made in order to return her company to solvency. She instructed her legal counsel to file a petition for voluntary Chapter 11 bankruptcy.
Peck said that with the legal option of Chapter 11 in place, consignors would also be protected, since an outside party could then be brought in to assume and pay “those prior consignment contracts existing before and rising out of the January auction.”
“New Orleans Auction Galleries has a lot of friends out there,” Peck said. “Some consignors have said, ‘You don’t have to pay us right away.’ This has been very helpful to the business.”
Peck continued: “Reputation is everything, and there are many who believe New Orleans Auction Galleries is the finest auction house in the South. We will be around as a going concern, with financing and liquidity. We are expecting a robust auction this weekend, followed by another one after that…Any reports of our death are greatly exaggerated.”
Copyright 2011 Auction Central News International. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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UPDATE – 4/6/2011:
Auction Central News spoke with NOAG’s president, Jean Vidos, who provided additional details about the reorganization of her company.
“In this particular situation, consignors should feel very confident. We went to the mat to make sure they would get paid in full, subject to court approval. To me, that was the most critical issue.” Vidos said.
Vidos said she had spent eight days conferring with attorneys and other counselors prior to filing for Chapter 11 protection and that some had cautioned her about the repercussions of following a course that put consignors first. Vidos said she told them: “This isn’t about me – this is about the company. We have a good name and we fill a void. We’ve done too much and we’re too good a company to just give up, lock the doors and be done with it.”
Vidos was adamant that there would have been no benefit in waiting to file for Chapter 11. “Sometimes people wait too long, then it becomes a horrible situation and people don’t get all of their money,” Vidos said. “This has been a really long recession – too long. I think that because of the plan we have in place, very few people will be impacted, if the court approves.”
“In any business, three months is a long time to be away. In the auction business it’s an eternity,” Vidos said. “I’ve been doing my job for 20 years. When I became ill, I had to leave our team in the lurch. Now I’m back. I feel great, I feel rested and I have a handle on the business. I think in three months we’ll be in and out of it, and it will seem as though it was just a bump in the road.”
Copyright 2011 Auction Central News International. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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