The classic silent film Metropolis by director Fritz Lang thrilled audiences in the 1920s by depicting a fantastic Art Deco image of a future civilization. Only four posters from that landmark film survive and one of them found its way into the hands of collector Kenneth Schacter, according to this article from Blastr.com. Schacter apparently bought the poster in 2005 for $690,000 but in December of 2011 needed to file Chapter 11 to get protection from his creditors after finding himself unable to make a $500,000 payment to an investor.
Chapter 11 is an extremely powerful and flexible procedure that allows a debtor to remain in control of his assets while he attempts to reorganize. One of the critical philosophies behind Chapter 11 is the idea that assets retain their highest value in the hands of the person or company who bought or developed them. Maintaining this “going concern” value is thought to be in the best interest of the debtor and its creditors.
Like most of the other powerful tools available under the bankruptcy laws, Chapter 11 is a privilege and not a right. Debtors operating under Chapter 11 have a fiduciary duty to protect their creditors. While debtors are permitted to operate normally with minimal court supervision, transactions outside of the ordinary course of business must be approved by the bankruptcy judge.
Schacter then must’ve known then that he was going to self-destruct when, according to Blastr.com, he tried to sell the Metropolis poster on an auction site without permission from the bankruptcy court. His asking price? $850,000 (he had apparently listed the value of the poster at $250,000 on his bankruptcy schedules). We can only guess what would have happened to this money had Schacter succeeded in this scheme.
As Blastr.com reports, the consequences for Schacter’s veiled subterfuge were predictable: he was swiftly removed from his Chapter 11 power and the case was converted to a liquidation under Chapter 7 of the bankruptcy code. Now, a trustee will attempt to sell the Metropolis poster which is expected to fetch over $1 million. The creditors will win, but Schacter may find himself scrambling to hang onto his discharge after his Chapter 11 meltdown.