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Detroit Judge Denies Creditors a Role in Valuing Art

Detroit’s bankruptcy judge denied a creditors’ request for an official role in overseeing how the city values and uses its art collection to reorganize.

U.S. Bankruptcy Judge Steven Rhodes said he lacks authority under Chapter 9 of the federal bankruptcy code to force the city to accept and fund a creditor committee with the authority to participate in decisions on the art. Chapter 9, which governs local-governmental bankruptcies, gives judges less power over municipalities than they have over companies.

“Even if the court had the authority to grant the motion,” Rhodes said, the court wouldn’t do so. Decisions on whether to use the art to pay creditors owed more than $18 billion should be made as part of a plan the city is preparing, Rhodes said yesterday.

Rhodes also declined to bar the city immediately from imposing cuts to retiree health care. Instead, he will consider a request to stop the city from imposing the reductions as part of the normal objection process. If necessary, he will hold a hearing later this month on the cuts, he said.

In November, bond insurers Financial Guaranty Insurance Co. and Syncora Guarantee Inc. asked Rhodes to order Detroit to cooperate with a committee of creditors in determining how much the collection is worth.

New York-based Christie’s Inc. said Detroit Institute of Arts holdings bought directly by the city was worth as much as $867 million.

To prevent any sale of the art and to help Detroit’s underfunded pension system, museum boosters have offered to provide the city with $330 million.

The case is In re City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).

To contact the reporters on this story: Steven Raphael in U.S. Bankruptcy Court in Detroit at sraphael5@bloomberg.net; Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net.

To contact the editor responsible for this story: Andrew Dunn at adunn8@bloomberg.net.

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