For creditors of the online auctioneer Paddle8, which declared bankruptcy last month, the timing couldn’t have been worse. As the cultural sector ramps up emergency relief efforts to temper the devastating impact of the coronavirus pandemic, organizations that went unpaid by the now insolvent company are facing a double challenge: enduring the crisis while trying to recoup their losses.
In early March, the New American Cinema Group in New York sued the company for allegedly misappropriating funds from its November charity auction; a week later, Paddle8 declared bankruptcy.
Paul Cossu, an attorney for the New American Cinema Group, told Hyperallergic, “Paddle8’s decision to rush to file for Chapter 11 bankruptcy in order to prioritize the interests of its shareholders and executives over the nonprofits that it misappropriated funds from is particularly troubling in light of the difficult financial circumstances that so many small nonprofits are experiencing as a result of the pandemic.”
Now, some of the impacted organizations are launching fundraisers to make up the money they had already raised through charity sales on the platform — but never received.
In November 2019, the artist-run, Bushwick-based gallery Underdonk held a benefit auction through Paddle8.com that raised $15,880 in sales of artworks donated by artists, including Katherine Bradford and Danielle Orchard. Laura Frantz, a founding member of Underdonk, told Hyperallergic that she hand-delivered the sold works to collectors herself. But by February 1, the date by which Paddle8 had promised payment, the gallery still hadn’t seen the funds.
Struggling to stay afloat during the current crisis without the funds they had budgeted, Underdonk has started its own fundraiser. “The artists who generously donated work have not received their percentage, and the funds that help us run as a space are nowhere to be found,” reads a statement on the gallery’s website.
In response to Hyperallergic’s request for comment, Paddle8 said it has sought protection under Chapter 11 of the Bankruptcy Code and will “work cooperatively with our creditors with the intention of proposing a plan to satisfy our obligations to our nonprofits and consignors.”
According to Paddle8’s Chapter 11 bankruptcy petition, the company has over $10 million in liabilities and less than $50,000 in assets. Its list of creditors includes well-known names, including Jay-Z’s Shawn Carter Foundation and Justin and Hailey Bieber, to whom the company reportedly owes $65,000 and $73,000 respectively. The Rema Hort Mann Foundation in New York City, a nonprofit dedicated to supporting emerging artists, also lost the funds from its recent auction.
Despite any solidified prospects of future payments by Paddle8, affected arts organizations have immediate financial responsibilities, such as rent dues, which they must continue to meet even as the pandemic thins income from art sales and memberships. In the case of Underdonk, says Frantz, the gallery does not usually have a steady influx of revenue from art sales; it was relying on the benefit auction to make many ends meet.
“We could have weathered the coronavirus pandemic with our member dues and the money from the Paddle8 auction,” said Frantz. “We now have to raise the funds ourselves to cover our operational expenses and fulfill our obligations to artists.” Underdonk hopes to organize a sale of small works on paper in mid-May to help keep the gallery open.
Ortega y Gasset Projects (OyG Projects), a nonprofit curatorial collective and exhibition space, had mounted a brick-and-mortar show of the works included in its Paddle8 auction in December 2019, hoping to offer an immersive experience in addition to the online sale. At its own expense, OyG Projects installed just under 50 pieces in a salon-style group exhibition at the gallery’s headquarters in Brooklyn’s Gowanus neighborhood, serving wine donated by Red Hook Winery.
Eric Hibit, one of the OyG Projects’s co-directors, said he received confirmation from Paddle8 in early December that funds would be paid out by January 15, within the 30-day payment terms of their contract. But as weeks passed and payment did not hit OyG’s account, he grew uncertain. Follow-up emails to the company were met with general messages of reassurance, insisting that the gallery was a “top priority” and apologizing for the delay. In another e-mail, says Hibit, Paddle8 mentioned needing time to finalize payments with its new board.
“I started to get worried toward the end of January when the payment became 15 days past due. By mid-February, I was very concerned,” said Hibit.
When he learned Paddle8 would not make good on its debt, the nonprofit turned to its supporters. “We have been financially devastated by the snowballing of Paddle8’s bankruptcy and COVID-19,” read a post on its Instagram announcing an emergency fundraiser.
Cossu, who is unaffiliated to either Underdonk or OyG Projects, describes the need to newly fundraise the amounts owed by Paddle8 from prior fundraisers as “a cruel irony.” But thanks to donations received so far, OyG Projects is now close to recuperating the amount lost to the bankruptcy. “While we were heartbroken over the original news from Paddle8, we were heartened by the outpouring of support,” said Hibit.
“OyG is an artist-run nonprofit whose mission is to support artists by creating exhibition opportunities. We really feel that our community has come through for us.”