Error exposes $6.4M of Art Gallery of Sudbury assets to Laurentian's insolvency process

A failure to get legal advice has officials at the Art Gallery of Sudbury scrambling to protect its art collection, museum building and other assets.

The gallery is heading to court next month in an attempt to remove its estimated $6.4 million holdings from Laurentian University's insolvency process.

According to court documents, officials at the gallery misunderstood the process under the Companies' Creditor Arrangement Act (CCAA). Without getting legal advice, they added themselves to the list of creditors making a claim against the university when the school declared insolvency in 2021.

It consulted with the monitor of the CCAA process, Ernst & Young, to get advice on joining the list of creditors and made a claim in July 2021.

"We exchanged information on the assets that would eventually be listed in our proof of claim," AGS curator Demetra Christakos said in its court filing.

"The monitor advised that if the AGS believed that it had any rights to any assets it should file a claim or it might lose those rights. This was very concerning for us, and we came away from that meeting with the understanding that we had to file a claim or we would lose our rights to the assets."

At the time, Christakos said they didn't understand the role of the monitor.

"The AGS misunderstood the nature of the role of the monitor and that it is not up to the monitor to provide legal advice to potential stakeholders such as the AGS about the process or our rights," she said.

"We thought the monitor was an independent body with obligations to the creditor and debtor. Nonetheless, at the time we took the monitor’s advice as definitive as to what we had to do."

The AGS filed a claim totalling $6,390,667.35, representing the value of all its assets, even though it wasn't actually owed that amount by LU.

"As a charitable organization, the AGS has limited funds to spend on professional advisors and did not retain legal counsel to assist it with filing its claim," Christakos wrote.

"Indeed, the board of directors is of itself made up of volunteers. We were confident that Laurentian shared our understanding of the status quo under which we had operated for several decades, we did not anticipate a dispute."

After filing the claim in July 2021, the gallery received a notice in February of this year that the claim was disallowed.

"The disallowance not only disallowed our monetary claim in full, but also included the statement in each case that the AGS had no rights to the assets," Christakos said.

"However, I noted that in the monitor’s reasons for denying the claim that it did not provide any supporting documentation or direct evidence to support its position. The monitor also made no finding as to who owned the assets in question."

Concerned it would lose its assets, the gallery finally hired a lawyer in March, who met with officials from Ernst & Young to try and resolve the matter.

Now, the gallery is seeking to withdraw its claim as a creditor, saying LU doesn't owe it any money. While that wouldn't be a declaration that the gallery owns the assets, the AGS said that could be settled at a separate hearing if LU chooses to go that route.

For her part, Christakos said she is shocked at the idea the gallery could lose its collection because of an honest mistake.

"I am deeply troubled by the assertion that a public art gallery, which operates for the public good, can suddenly and permanently lose rights, including property, it has held and provided care for over 25 years, because of a misunderstanding in the operation of the CCAA process without the opposing party having to even explain or assert their rights to those assets," she wrote.

Read all the court documents here.