Tom Lowenstein's Recent Submission to the Australian Competition and Consumer Commission (ACCC) and the Victorian Minister of the Arts regarding Trust Accounts for the Galleries

An art gallery is a unique type of business. Compared to other retail businesses, it has the advantage that it need not buy stock, as most art works are left by the artists on consignment. This has enabled and even encouraged some people with limited capital to open galleries, relying on income from exhibitions to cover their overhead expenses.

In the early 1990s, the art market was quite depressed, and sales dropped dramatically, with the result that some galleries had to close their doors, owing artists substantial monies.

Fortunately, over the past fifteen years, with the general economy quite buoyant, most commercial galleries have been able to meet their payments to artists, as well as their other commitments, and there have been very few closures.

Nevertheless we are constantly made aware of some galleries (and let me stress that these cases are exceptional), who do not pay their artists promptly. Artists are forced to

wait for months for payment; in a few cases, legal action had to be taken.

The concern is that if there is a downturn in the economy and the consequent flow-on to commercial galleries, that in many cases artists will be the ones who will suffer most.
In my view, galleries fall into three major categories in their attitude to Trust Accounts:

  1. Galleries that indicated that they are willing to operate through Trust Accounts. These galleries usually keep excellent records, pay their artists promptly and have not previously had financial problems with their artists. However, these galleries have been pressured by their Association to oppose the introduction of Trust Accounts.
  2. Galleries that oppose the introduction of Trust Accounts and are morally outraged by the concept. They argue, that the relationship between the gallery and the artist is only based on trust, and bringing in financial and legal restrictions would destroy that relationship. I consider this argument completely untenable, as I feel that a relationship does not deteriorate simply because the conditions of the relationship are clearly spelt out.
  3. Galleries that are reluctant to operate Trust Accounts, because they are in fact using artists' monies as working capital.

It is my recommendation that Legislation should be introduced, whereby when a Gallery receives payment for sale of an artist's work, the proceeds should be placed into a Trust Account, similar to Solicitors and Estate Agents Trust Accounts.

A number of commercial galleries and the Australian Commercial Galleries Association have opposed this concept, and it is unlikely that the ACGA will self-regulate and set up Trust Accounts without some form of Government intervention.

© Tom Lowenstein, 2009

Date posted: June, 2009