Art Gallery of Sudbury assets must remain part of Laurentian insolvency process: court documents

Error exposes gallery to LU's insolvency process A failure to get legal advice has the Art Gallery of Sudbury scrambling to protect its art collection, museum building and other assets.

Art Gallery of Sudbury assets worth $6.39 million must remain part of the insolvency process at Laurentian University, say court documents filed by the monitor of the process.

The accounting firm Ernst & Young is the monitor, a role in which it acts as an independent observer in the process under the Companies' Creditors Arrangement Act (CCAA).

The AGS is heading to court next month in an attempt to sever its assets from the insolvency process. They include the Bell Mansion (valued at $1.3 million), the art collection (valued at $4.8 million), as well as funds held in trust (about $216,000) and the library ($20,000).

The fate of AGS assets is of particular importance right now, since Greater Sudbury is planning on spending roughly $50 million building a new art gallery and library in downtown Sudbury, a project known as Junction East.

While the gallery said in an earlier court filing that it joined the LU claims process in error, Ernst & Young said AGS assets belong to the university and to sever them from the process would be unfair to other claimants.

Laurentian received the Bell Mansion in 1967 and operated the LU Museum and Art Centre (LUMAC) out of the mansion until 1996. That's when the AGS was created as a separate corporation, with the goal of eventually transferring ownership of all the assets to the AGS "upon satisfactory evidence that the new entity is able to ensure the continuing operation of the facility.”

The gallery has operated under an agreement signed in 1999 in which the AGS operates the gallery for LU – but with the university retaining ownership.

Also at issue is a 1981 donation from Barbara A. McDonald, who gave two properties that were sold with the revenue earmarked solely for buying art or paying renovation costs at the gallery. If LU closes the museum, any remaining funds were to go to the Royal Ontario Museum (ROM). With interest, that fund should have about $216,000.

"However, the monitor notes that LU did not segregate the B.A. McDonald funds," the court documents said.

"These funds were deposited into LU’s general operating bank account and utilized generally in operations."

In reviewing the claim, the monitor ruled that the AGS has no claim to the B.A. McDonald funds, because if the gallery ceases to operate, that money goes to the ROM. There is also no documentation that shows the AGS owns the building, the library or the art collection.

Owned by Laurentian

While the AGS wants to sever its assets from the process and withdraw its claim, the monitor argues the assets are clearly owned by LU and therefore part of the insolvency.

"If the relief sought by AGS on this motion were granted, it would have the effect of treating the AGS claim differently from claims filed by other parties in the claims process, including other trust or property claims," the monitor wrote.

"It would be unfair to LU’s stakeholders and contrary to the purpose of the CCAA."

LU intends to sell the Bell Mansion, the monitor said, and use the revenue to help it emerge from bankruptcy.

"The monitor also understands that LU is considering all of its options with respect to the assets of the art collection," the court document said.

"LU is at a critical stage in its restructuring and is in the process of formulating a plan to present to its creditors. LU cannot do that unless it has certainty with respect to the quantum and nature of the claims against LU, and with respect to the property that is available for distribution to creditors."

The dispute will be heard at a court hearing next month. Read the full court filing here.