NERAM wants to extend a 10-year loan with Armidale Dumaresq Council to 20 years, a move that could absolve it of $178,500 in interest.
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The art museum was thrown a lifeline in 2006 by Council with a 10-year, interest free loan totalling more than $454,000.
It planned to service the loan by selling off pieces of artwork.
But so far only four years’ worth of debt has been repaid, leaving an outstanding bill for $295,000.
NERAM Board chairman Andrew Murray told Council the valuations on the paintings were not going to be a viable option for repayment.
That’s because the art market is soft and the gallery, in Kentucky Street, has found it difficult selling some works without damaging the artists’ reputation.
Paintings from the regional museum’s Coventry and Hinton collections have been quarantined from any sale.
The matter was raised at Monday’s Council meeting.
“As the original repayment schedule was an interest-free loan, Council needs to recognise as part of its accounting requirement the impairment of the loan and the write off of the interest,” officers advised.
“The loan interest write off ... over the next 16 years on the current balance will be $178,000.”
The museum wants to extend the loan until 2029, paying off $10,000 a year over the next five years, with that amount rising incrementally to $30,000 until the amount is paid off in 2029.
“As NERAM does not have the financial capacity to repay the loan, the proposed schedule will need to be accepted,” officers wrote.
“Alternative recovery actions will not be practical.”
Councillors resolved to continue talks with the museum’s board.