12.11.13

The Motor City’s Fine Art of Municipal Bankruptcy. The City of Detroit yesterday formally objected to a group of the city’s creditors request for an independent evaluation of the Detroit Institute of Arts collection. The creditors petitioned U.S. Bankruptcy Judge Steven Rhodes to order the city to cooperate with an assessment of the DIA’s collection. The creditors include insurers and the city’s largest union, the American Federation of State, County and Municipal Employees. The city’s attorneys urged Judge Rhodes to reject the request, because the request undermines the Motor City’s “exclusive right” to file a plan of adjustment, which Detroit Emergency Manager Kevyn Orr intends to file by the first week of January. Christie’s Appraisals has already commenced an appraisal—last week having released a preliminary report estimating the value of 2,781 objects of art at the Institute to be worth between $452 million to $866 million. Detroit’s attorney, Bruce Bennett, said it would be “wasteful” to conduct another valuation of the city-bought art at the DIA. But in the wake of the post-eligibility ruling by Judge Rhodes, and the ensuing scramble by the city’s unsecured creditors to have access to as many potential assets as possible; the city’s world class art collection has become a target of envy. Indeed, Mr. Orr requested the Christie’s assessment, presumably in order to have the best possible understanding of the city’s assets. Last month, in their filing, the creditors wrote that the city’s plan needs to consider the best interests of creditors: “Accordingly, the ‘best interests of the creditors’ dictate that the city must demonstrate that its plan maximizes the value of the art to enhance creditor recoveries.” Counselor Bennett , however, objected that the creation of a city-funded art committee would violate the federal municipal bankruptcy law’s prohibition on court “interference with a Chapter 9 debtor’s property,” noting the fundamental federalism provisions in the law barring a federal judge from dictating how a municipality spends its money during bankruptcy proceedings. Perhaps more unstated, Manager Orr is apprehensive about the extraordinary costs of current legal and consulting services related to the city’s municipal bankruptcy—with every such dollar taking away from resources that will be critical if Detroit is to emerge from insolvency and bankruptcy to a sustainable future.

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