The Russian-owned auction house Phillips is in an uncertain financial position, according to audit records that were reviewed by the Guardian.
A recent audit carried out by a UK accounting firm found that the house is relying on guarantees—internal financial deals made with outside backers to secure funds on auctioned artworks—provided by two founders of the house’s parent company, a Russian luxury retailer. These guarantees, plus increasing debts, have reportedly forced Phillips into a situation where it faces “material uncertainty.”
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In response to an ARTnews inquiry, a Phillips spokesperson said the questions raised about its financials do not affect its business internally. “Phillips regularly assesses its expenses on a regular basis. There are no planned adjustments to the company’s operations and staffing,” the spokesperson said.
The records reviewed by the Guardian stated that the dynamic could potentially place “significant doubt” on the business’s stability.
Phillips, one of the three largest auction houses in the world, oversees offices in New York, London, and Hong Kong. It is owned by Leonid Fridlyand and Leonid Strunin, the founders of Mercury Group, a Moscow-based luxury retailer.
Auditors raised flags about the auction house’s financial stability because of risks to its £90 million ($110 million) in assets and uncertainty over its owners’ ability to shoulder potential losses. Some £95.9 million ($117 million) will be owed by Phillips to Mercury’s companies in the next year; £57.8 million ($71 million) is owed to the Russian group over a period of undisclosed years, though Phillips is owed £59.8 million ($74 million) by the Russians’ companies.
Phillips parent company’s “exposure to the Russia/Ukraine conflict” was also listed as a possible financial risk to the house. Access to the Mercury Group’s funds, along with potential exposure to financial laundering and reputational risks, could pose issues for the house, according to the documents.
In March of last year, following the invasion of Ukraine, auction houses came under further scrutiny for their involvements with high-profile Russian clients and their fiduciaries abroad. Phillips told ARTnews in late February 2022 that it didn’t expect Western sanctions on Russia and its business elite to affect the houses operations or its sales.
Records reportedly showed that the Mercury Group was transitioned to a tax haven registered in the British Virgin Islands around a week before Russia invaded Ukraine.
In a statement to the Guardian, Phillips said that its parent company had made “significant” investments in the company, despite it being a small part of the Mercury Group’s overall portfolio, since its acquisition was completed in 2012. The sale of the house was initiated in 2008; the house ultimately went for $60 million. It said that its owners expect to see those investments eventually repaid.
Source: artnews.com