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Barton LLP
New York, New York

May 7, 2018, New York, New York - In a case that could have significant impact in the art finance market and in financing transactions generally, a New York State appellate court has ruled that parties cannot assume that their own characterizations of their financing transactions will prevail.

Late last week, in Anatole Shagalov, et al. v. Asher Edelman, et al., the Appellate Division, First Department affirmed that art dealer Anatole Shagalov is likely to prove that his financing arrangement with an affiliate of the financier Asher Edelman, structured by Edelman as a sale and leaseback of several works by the artists Keith Haring and Frank Stella, is actually a collateralized loan transaction. This means that the artwork which Mr. Edelman’s company nominally purchased from Mr. Shagalov may be treated as loan collateral, with significant protections for the borrower under Uniform Commercial Code Article 9, and substantially limiting the lender’s ability to sell artwork to satisfy in the case of any default on loan obligations.

Mathew E. Hoffman, Jason Cohen and Randall Rasey of Barton LLP represented Mr. Shagalov and his company on the appeal. “Those providing financing especially in the art market but actually more broadly will need to be very careful in structuring and drafting their transactions in order to ensure that they are not treated as loans,” said Mr. Hoffman.

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