NEW YORK.- Bonhams is challenging other major art auctioneers to adopt a system that safeguards their clients’ funds during the auction process and cease depositing their sale takings into general company accounts where clients’ funds are vulnerable to use by others.
Bonhams, the third largest art auction house, believes it is time to address the issue of clients’ unprotected cash holdings and set up trust accounts to protect their buyers’ and sellers’ monies during the auction process.
In an industry not always known for its transparency, Bonhams is urging greater self-regulation. "It is absolutely right that trusts should happen and absolutely wrong it does not apply across the industry,” says Robert Brooks, chairman of Bonhams.
The potential problem lies within a system that holds on to sellers’ cash. Most auction houses do not settle with sellers until a month after the sale; meanwhile money owed to sellers is not differentiated from company cash flow.
Malcolm Barber, Bonham’s CEO in the U.S. says, “We offer something in these very uncertain financial times which we think is a major advantage to our clients, and that’s an escrow account or what we call a trust fund account and that means that every time we sell an object for any consignor anywhere, Europe, America, Australia, the moment we’re paid for that item the funds are swept into a client account which is ring-fenced. We don’t operate using those funds. We separate our commission earnings and expense earnings from it and that’s how we run our business.“
With the recent collapse of established financial firms, Bonhams is not entirely convinced the auction houses are exempt from a similar fate. “In light of recent financial and banking turmoil”, says Brooks, “this must surely be a priority.” He is urging the other large firms to adopt a system that ensures the safety of clients' funds otherwise sellers could also end up as creditors.
In an industry where price guarantees for sellers and long-term credit for buyers are the norm, the treatment of clients' funds is critical.