Pictor Ltd. Insolvent

Posted on 2/9/2002 by Jim Pickerell | Printable Version | Comments (0)



February 9, 2002

Pictor International Limited in the UK is insolvent and asking their creditors to vote on
February 14th to approve a Company Voluntary Arrangement (CVA) proposal.

Under this proposal the unsecured creditors (all photographers, stock agencies, and other
trade creditors) will receive 4% of what they are currently owed and this amount will be
paid out over a period of three years. Current debt to the unsecured creditors is
4,586,466 pounds, but 3,010,000 of that is to Pictor Holdings Ltd leaving the amount owed
to photographers, agents and other trade creditors at about 1,576,466 pounds $2,229.000.

The documents filed as part of the CVA indicate that Pictor Ltd. had gross turnover in
the 10 months of 2001 ending on October 31st of 2,903,000 pounds. Administration
overheads, not including any of the royalties that were owed to the photographers and
stock agents were 2,835,000 pounds leaving a balance of 68,000 pounds. The total "cost of
sales" (the royalties owed photographers and stock agents) was 1,138,000 pounds or about
39% of total turnover. As best we can determine none of these royalties were paid out and
are included as part of the debt.

In addition Pictor Ltd had 476,000 pounds in finance costs that were payable. Total
turnover in 1998 was 4,193,000 pounds, a 9% drop from 1997. Turnover has continued to
fall since 1998. The CVA is premised on the managers being able to generate a 16%
improvement in sales performance in 2002. Given the state of the economy, and the state
of the stock photo industry, this seems wildly optimistic. The most successful company in
the industry, Getty Images, reported this week that sales in 2001 were down 7% from 2000.
For 2002 they are estimating that their sales will range between a loss of 5% and an
increase of 2%. It seems questionable as to whether Pictor can somehow do so much better.

Meanwhile, Pictor Inc., the U.S. division of Pictor Ltd., has been in Chapter 11
bankruptcy since May 1, 2001. In the seven months of May through November Pictor Inc. had
gross sales of $315,758 in the U.S. In November their total sales were $26,279. Expenses
for the May through November period were $567,723 not counting the $140,545 owed the
photographers. Salaries alone for the seven months were greater than total sales and this
was after the company had made major staff cuts at the end of April.

Through November 2001 the photographers contracted to Pictor Inc were owed at least
$610,949 according to documents filed with the court. Approximately 700 individual
photographers worldwide are affected by the actions of Pictor Inc. and Pictor Ltd.

Creditor's Meeting

Each creditor's vote at the creditors meeting on the 14th will be based on the amount
they are owed. Some creditors claim they are owed much more than Pictor records show, and
that they will present documentation to the Supervisor to prove their assertions. For
this reason it is unclear what the total vote is likely to be.

At the meeting creditors are free to offer resolutions to modify the CVA, but any motion
must have a "majority in excess of three quarters in value of the creditors present in
person or by proxy" for the resolution to be approved. Thus, it is unlikely that there
will be any changes in the CVA as proposed. However, it also seems possible that the
Pictor proposal will not be approved as a vote against the proposed plan by 25.1% of the
creditors can defeat it.

There are two major creditors The Thames Fund Ltd and Pictor Holdings Ltd. that are
collectively owed 10,097,000 pounds. However because they are insiders their debt will be
subordinated to that of all the other creditors and they will not receive anything unless
all the other creditors are paid in full. At this writing it is not clear whether they
have any vote on the 14th. If they have a vote they can force through any resolution, but
it is believed they are not allowed to vote.


Another factor to be considered is that PictureQuest has an offer on the table to take
over the licensing in the U.S. of the images of the photographers who hold Pictor Inc
contracts. This offer is presently being considered and negotiated by the U.S. Creditors
Committee. It is expected that a final version of the plan will be presented to all the
creditors soon.

Some of the key elements of the Pictor/PictureQuest proposal are:

    1 - Copies of all digital files of the images of photographers contracted to Inc.
    will be transferred to PictureQuest and integrated into the PictureQuest database. These
    files are currently in London and managed by Pictor Ltd. It is not clear whether images
    of the LTD photographers will be turned over to PictureQuest for marketing in the U.S.

    2 - All film files of images belonging to the INC photographers will be transferred from
    London to the U.S. PictureQuest will edit the film files that are not already scanned,
    and return to photographers all images they don't wish to scan.

    3 - Photographers will agree to a reduced royalty of 30% for three years. During this
    period an additional 30% of the new fees collected will be used to fund the repayment of
    the existing debt to creditors.

    4 - The photographer's royalty share will be paid directly by PictureQuest rather than
    the money being sent to Pictor and Pictor being responsible to pay the

PictureQuest has already been marketing some Pictor images. Currently Pictor has 13,257
images in the PictureQuest database and have generated about $145,647 in gross sales in
the past year. Pictor's share of this would be $87,388 (gross minus 40% share to PQ) and
the photographer's share would be $43,694 (half of what Pictor gets.) (No share of the
monies paid to Pictor by PictureQuest has been paid to photographers since 1999.) It is
believed that Pictor has about 40,000 other images currently scanned and in its database
that might be added to the PictureQuest database.

Key Issues For Photographers To Consider

  • Liquidation. If Pictor Ltd ceases to exist, it is unclear whether there will
    be any way to transfer the existing digital files to PictureQuest, or any other database
    operator. In this event the value that has been created by scanning and keywording these
    images may be lost.

  • Payment To Creditors. The PictureQuest offer sets aside a percentage of
    future sales for a period of three year for payment of creditors rather than designating
    a specific amount of money per month as is the case with the London CVA. With the PQ
    offer, if future sales improve dramatically the creditors will receive a greater
    percentage of what they are owed. With the CVA, no matter how good the future sales
    creditors will never receive more than 4% of what they are owed.

    Making an assumption that sales for the next three years through PictureQuest would
    average about the same as they have in 2001, the U.S. photographers and trade creditors
    might get somewhere between $.25 and $.29 for each dollar currently owed. However, it is
    also possible that sales will not be as good, since the level of sales has been
    deteriorating rapidly and may take some time to build up. The discrepancy between the
    amounts U.S. and European creditors will receive has to do with the size of the debt in
    each location, as well as the fixed vs. variable strategy for payback.

  • Receiving Royalties On Future Sales. While in the best case scenario CVA
    creditors will receive very little payment against the past debt, the CVA requires that
    Pictor stay current with all payment of royalties for future sales, based on the agreed
    contractual arrangements. If they do not stay current the Supervisor is supposed to move
    to put the company in some other form of insolvency, i.e. Liquidation, Administration or

    It is worth noting that, in theory, this is what Chapter 11 in the U.S. provides as well.
    However, in the nine months since the Chapter 11 was filed it has not worked out that
    way. Pictor Inc has licensed $315,758 worth of rights to images and the photographers are
    entitled to $140,545 or 45% of this revenue. According to records filed with the court
    not one penny of any of this money has been paid to any photographer since the Chapter 11
    was filed.

    One of the concerns is whether royalties on future sales will be paid to the
    photographers, or whether all of that money will disappear as well.

  • Exclusive Contract. The existing contracts that Pictor has with many
    photographers are exclusive and prohibit the photographers from supplying images to any
    other stock agency, or marketing database that negotiates and collects fees on behalf of
    the photographer. In effects these contracts become a legal "Restraint of Trade" for the
    image suppliers.

    When Pictor stopped paying royalties the photographers options were very limited. They
    could engage in very expensive litigation to try to first determine what they were owed,
    and then force Pictor to pay then. Almost none choose this course of action. Upon initial
    reflection it seemed clear that any individual photographer might spend more on
    litigation than they would ever be able to collect.

    The other option was to wait out the term of the contract (often five years) and then
    legally terminate. At that point there was no guarantee that they would get their images
    back as some photographers who have terminated are still waiting, years later, for all
    their images to be returned.

    In such a situation, during the period leading up to termination, the photographer does
    not want to supply new work to Pictor, and is left with no legal means to sell new work
    through any other image marketer. This also holds true for images that are submitted to
    Pictor for consideration, but which the agency is unwilling to accept or market for one
    reason or another.

    Photographers with all agencies, not just Pictor, are realizing that in order to maximize
    their earnings from stock photography they must have, in this rapidly changing marketing
    environment, the flexibility to pick and choose at any moment where to send new work.
    They are realizing that it is unwise to have their livelihood tied up in a three to five
    year unbreakable contract. In addition, they probably need to place images with a variety
    of marketing outlets, so they are not totally at the mercy of the whims of any one

    Thus before they agree to the CVA, many of the Pictor photographers are seeking, at a
    minimum, an addendum to their existing contracts that makes them image-exclusive for the
    images accepted and being marketed. This would leave the photographer free to supply
    other images, at the photographer's option, to other marketing organizations.

  • Return Of Images In The Event of Closing Down. No inexpensive way has been
    devised to break up the existing files and return the images to the copyright holders if
    the business goes into receivership. No money has been set aside for this purpose. The
    images are filed by subject category, not by photographer. Thus, the first thing that
    must be done once a decision is made to return the images is to go through the entire
    file sorting the images by photographer. Only at that point is it possible to begin
    returning images to the various photographers.

    To get some idea of the dimensions of this problem consider that Getty Images has for the
    last year-and-a-half been aggressively sorting and returning images belonging to TIB, FPG
    and some Stone photographers. They have said that they have a staff of 30 working in
    Dallas, Texas on this project, and that in 2001 they returned almost 10 million images to
    photographers. This project is ongoing. It is not clear how many images Pictor has in its
    files, but it is probably in the millions.

    At least one company that considered purchasing the Pictor assets concluded that it would
    cost them at least $250,000 to break up and return the files.



    After reading my article Jonathan Gibson, Pictor Managing Director, sent the following

    Firstly, not all creditors will receive 4%. Some selected creditors are excluded.

    The cost of sales also incorporates photo costs (duping, scanning,
    production staff etc) and depreciation. Cost of sales (royalty portion) equates to 700,000 pounds of which
    300,000 has been paid.

    The 476,000 pounds of finance costs has been compounded and frozen over the term of the CVA.

    I must highlight the actual sales results and performance of 01. This stands at an 11% growth for
    the group (excluding USA and space fees - it is important to note that none of the financials in
    the CVA pack include Inc.)

      UK - 6% growth in revenue over '00

      Germany - 8% growth in revenue over '00

      International - 12% growth in revenue over '00

      France - 4% growth in revenue over '00

    The 16% is achieveble for the following reasons:
    On the back of the '01 performance - the release of 3 top hitting catalogues 'The Green
    Catalogue' being one, will have a marked impact on sales.

    The release in Q3 '01 of 3 catalogues.
    The relaunch of Pictor.com - a dynamic site offering RP/RF, online accounts, credit card
    transactions. Sales from the site are growing monthly. We have added 28 agents to the network
    over the past 18 months - this is starting to have a huge impact on sales and is on target to
    grow throughout '02 as new agents come on line.

    In the CVA document clause 5.2.5 on page 6 relates to profit thresholds and the
    relevent contributions to the creditors that would increase the 4% currently available.

    (This clause says: "In addition, a review of the trading profit is proposed on a six monthly
    basis in conjunction with the supervisor. From these and a review of the audited accounts an
    additional premium will be paid, within 3 months of finalizing the audit, based on the following

      0 to 300,000 pounds --- no increase

      300,001 to 450,000 pounds --- 25% increase

      greater than 450,000 pounds --- 50% increase")

    Jonathan Gibson

    Managing Director

  • Copyright © 2002 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 www.selling-stock.com, 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: http://www.jimpickerell.com/Curriculum-Vitae.aspx.  


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