Damien Hirst and Dennis Hopper get their fingers burnt in £18.5m art crash

On the floor of the Eyestorm art gallery lies a big mound of plastic bags and brown cardboard boxes. It could be an art installation – after all, the gallery, one of Britain's brashest, once played host to just such a work by Damien Hirst that was famously and mistakenly cleared away because a cleaner thought it was rubbish.

In fact, the bags and boxes tell a far more compelling story. Eyestorm, until recently the hottest brand in the world of Britart, has gone spectacularly bust with debts of £18.5m.

Among its myriad of creditors are the great and the good of the modern art world. Hirst himself is owed £78,000, most of which he is unlikely ever to see. Also owed thousands are Jeff Koons and the photographers Helmut Newton and Robert Mapplethorpe.

A friend of two of the high-profile artists on the list of creditors told The Independent on Sunday: "It's fair to say that they're all pretty annoyed about this. One of the big issues is that they have been unable to get their work back from the company. My understanding is that it's being held by the receivers."

Others caught up in its demise are the Magnum picture agency, owed £29,000, and Charles Schwab, one of America's highest-profile speculators, who sank about £1.3m into the project. Dennis Hopper, the Hollywood actor, is also understood to be a creditor.

Eyestorm, backed by millions of pounds of venture capital funding, promised to revolutionise the way the general public bought art. Launched in 1999 at the height of the dotcom boom, its mission was to sell modern art to millions over the internet. Traditional galleries, according to the Eyestorm mantra, were stuffy, intimidating places that put ordinary people off venturing into the art market.

So Eyestorm launched a snazzy website, opened two galleries – one in New York, the other in London – and attempted to put top artists into the homes of the masses. It signed a deal with Hirst to produce a series of limited-edition prints signed by the artist himself and selling for £1,000 each. Other artists were already on board, such as David Hockney, Marc Quinn, and Andy Goldsworthy (all creditors of Eyestorm).

Eyestorm paid £2m for an advertising campaign, and its parties were some of the best in town. The media was impressed by this glittering new gallery. The Daily Telegraph called it the "antithesis of the intimidating establishment", while The Sunday Times listed it as one of the best new websites of 2000, adding: "Visitors who look at Eyestorm will not be able to understand why someone did not think of it before." The IoS was also approving; readers of this newspaper were offered a first shot at buying Hirst prints.

Alas, Eyestorm did not take the art market by storm. It had a total of 7,000 paying customers – nothing like enough to pay back the investors and offset the huge spending. At its peak it employed 80 staff on both sides of the Atlantic, levels unheard of for a commercial art gallery.

The IoS has now discovered that the company went into liquidation in May, owing £18.5m, with a long list of creditors. It's not just artists who are owed money; so too are picture framers, former employees, a public relations agency, customers and, of course, banks and the taxman.

What may be most galling for those owed thousands is the news that Eyestorm has now resurfaced, run by the same directors. Its galleries may have shut down but the website continues to do business, and an office still operates in New York, as does a warehouse and office in east London. Four weeks ago, Eyestorm's founders, David Grob and Don Smith, bought the company back from the liquidators, BDO Stoy Hayward, for a figure understood to be £130,000 with another £200,000 to be paid over the next two years. Creditors are unlikely to get any of their money back.

Mr Smith told the IoS: "We are still very friendly with all our creditors. We stayed with the business through the liquidation process so we could sell it on. We wanted to get the best deal for the creditors.

"Over a period of time we hope to make good some of those payments to the artists. We don't have to do this because this is a new company, but in all fairness we will try to honour these debts."

Mr Smith blamed Eyestorm's collapse on 11 September and on the withdrawal of funding. He denied the firm had, like other dotcoms, been too free with other people's money. Lavish parties, he explained, were "sponsored by drinks and lifestyle" companies.

Giles Howard, chief executive of Britart.com, a rival to Eyestorm which still – and more successfully – sells art via the internet, said Eyestorm was a victim of its own success. "One of the things that has allowed us to survive was because we couldn't raise the huge sums they did," said Mr Howard. "If we did we would have spent it like they did."

One creditor, who did not wish to be named, but is owed about £10,000 for supplying materials to Eyestorm, said he had given up hope of seeing his money again: "The problem is, in the art world the real money comes from selling to the corporate sector – and dotcoms have enormous difficulty selling business to business. But that didn't seem to bother Eyestorm. They were burning money every month."

The dotcom bombs

Charles Begley

Boo.com

Online retailer called in the receiver in May 2000 after spending £100m. Boo had huge ambitions, but incompetent management, and technical failure brought the company down to earth. Fashionmall.com bought trademarks and technology for a bargain $2.

Excite@home

Providing high-speed internet access to millions in the US through TV cables, this firm was expected to make millions. February sawone of the biggest dotcom crashes ever: Excite filed for bankruptcy protection in September 2000 citing debts of more than £700m.

Step.Stone.co.uk

Online recruiters Step.Stone left its own 136 staff looking for work after closing its UK operation. In November Step.Stone cut 500 jobs across Europe after spending £20m on marketing since 2000. It hadmustered revenues of only £8m.

Sportal.com

Reached its peak during the Euro 2000 football championships, for which it had secured exclusive rights. However, it did not bring in enough money. Sportal.co.uk is still afloat, "powered by" sportinglife.com, having been purchased by UKbetting.com for £1.