Bankruptcy Scam

Posted on 2/27/2013 by Jim Pickerell | Printable Version | Comments (2)

Stock agency bankruptcies are becoming more frequent. In some cases photographers receive notices from a bankruptcy administrator saying that they are owed a certain amount of money. The administrator asks them to confirm, or prove, that is what they are owed.

This is usually the result of a royalty owed, and invariably the photographer never received any kind of sales reports from the agency indicating that he/she was owed anything. Photographers often ask, “How do I prove I am owed this money.”

Full disclosure. I’m not a lawyer. The following is based on my years of experience in the industry, not a legal opinion.

Unfortunately, the answer to the above question is usually, “you can’t, and even if you could you’re never going to see any of that money.” In a few cases photographers have actually seen where the picture or pictures were used; can prove (through a lot of effort) that the client paid the agent and the agent never submitted a royalty. However, it is unlikely to make any difference.

When significant amounts are involved the photographer may decide to hire a lawyer, but that almost never produces a satisfactory result.

Bankruptcy rules differ from country to country, but they usually favor secured over unsecured creditors. Photographers that are paid a royalty share of sales are unsecured creditors.

Most stock agency bankruptcies are the end result of agency owners having unrealistic hopes and extending themselves in an effort to succeed. The first thing they do when they start having cash flow problems is use up to 100% of the money collected from licensing to try to keep the doors open, the company staffed, and continue marketing in hopes that eventually the business will turn around. They usually keep records of what they owe contributors with the best intentions of paying them when they get more cash.

Often the owner will also borrow money from banks or other investors in an effort to build the business. These are secured creditors. In the event of a bankruptcy they are paid first. Usually, after they are paid there is noting left. In some cases there are several secured creditors and the total all are owed is greater than the asset of the company. In this case the assets are divided among the secured creditors, but all the secured creditors must get 100% of what they are owed before anything is paid to any unsecured creditor. Almost never is there anything left for unsecured creditors.

When the company finally files for bankruptcy the bankruptcy court appoints an administrator whose job is to make a list of all outstanding debts and sell off any assets to maximize the cash available to pay off creditors. While the photographs submitted by contributors and not technically assets of the agency, the administrator will not spend any money to sort assets and return them to their rightful owners because that would reduce the amount available to pay secured creditors. In addition the administrator has an incentive to close the case as quickly as possible at the lowest possible cost. Taking on an added burden of trying to distribute assets to photographers is not in the administrator’s best interest.

Bankruptcy As A Business Strategy

There are instances where an agent has bankrupted multiple companies – always to his advantage and the creator’s disadvantage. Here’s how it works. The agent gets access to a collection of images and licensed rights to those images, but seldom, if ever pays the creators anything. A few creators who might encourage their friends to submit to the agency may be paid enough of the royalties they are owed to keep them promoting the company to new photographers. Seldom are they paid everything they are owed. The agent also borrows as much money as possible. Rather than actually licensing rights to pictures, his sales skills are used more to convince investors that a stock photography business is a great investment.

He drags this strategy out as long as possible. If any of the investors, or creators that are owed a lot of money, decide to sue he takes the company into bankruptcy. The agent then starts a new company.

The assets of the first company include some cash, receivables, customer lists, furniture and hard drives full of images. (The assets used to include film, but now most of that is more trouble to handle than it is worth.) The bankruptcy administrator collects the cash and sends letter to all creditors listed on the company’s books to determine who is owed what. The administrator tries to find a buyer for the receivables, customer lists and images, but it is usually very difficult to determine the value of these assets. How many receivables will a new owner be able to collect? Are the customer lists any good? Will a new owner be able to license any of the images? And the administrator wants a quick sale for cash, not a long, drawn out negotiation.

The agent usually has the best idea of what future value might be, particularly if he has no debt. He comes in and makes an offer to buy the assets for his new company. The price offered is usually ridiculously low, but chances are there won’t be any competing offers. The agent is then relieved of all past obligations. He can collect some of the receivables. He can continue to license images, but has no enforceable obligation to pay photographer royalties for the sales made by the previous company.

For photographers, the really bad part about this deal is that there is no requirement to return the photographs to the creators and stop selling then. The new company will ignore any contract agreements the old company had with photographers regarding return of images. Photographers can request that their images be returned, or that the new company stop selling them, but in virtually all the cases I’ve heard of the photographer’s requests have been ignored. Not only will the photographer not get his images back, or any of the revenue the new company received from licensing them, but he may also lose potential sales that he or his other agents might have made of those images.

It is a no-win for the photographer. When a photographer makes an agreement with an agent to represent his work there is often no way to determine the agent’s moral code or how he is likely to deal with you if things go bad. Thankfully such situations are rare. Most agents are honest in their dealings. However, the only way to be sure you won’t get caught in such a situation is to never use an agent. Bankruptcy can be frustrating and discouraging for photographers caught in the middle, but when it happens the best course is probably to accept it as a cost of doing business and move on.

Copyright © 2013 Jim Pickerell. The above article may not be copied, reproduced, excerpted or distributed in any manner without written permission from the author. All requests should be submitted to Selling Stock at 10319 Westlake Drive, Suite 162, Bethesda, MD 20817, phone 301-461-7627, e-mail: wvz@fpcubgbf.pbz

Jim Pickerell is founder of, an online newsletter that publishes daily. He is also available for personal telephone consultations on pricing and other matters related to stock photography. He occasionally acts as an expert witness on matters related to stock photography. For his current curriculum vitae go to:  


  • Larry Minden Posted Feb 27, 2013
    why not name names Jim and help your readers steer clear of these predators

  • Bill Bachmann Posted Feb 27, 2013
    Yes, we would like names. It is not libel, just name companies going bankrupt. I know one of mine is, but give your evaluation of the situation with names.

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