Auction vs. auction. What's the difference between them?

Auction: a process governed by law

Auction is one of the tools in debt collection. Typically, it is used in cases where previous legal mechanisms have failed or are not possible. In the Czech legal environment, there are two main types of auctions — enforcement auction and insolvency auction.

It is typical for auctions that the price is binding and enforceable in court, the auctioneer becomes the owner even against the will of the debtor, and the starting price is based on expert opinion.

Enforcement Auction

It is used in the recovery of the debtor's claim. The auction is managed by the bailiff according to the Enforcement Order (Act No. 120/2001 Coll.).

The auction is initiated when the debtor has not paid voluntarily and the creditor already has an enforceable court decision (e.g. a payment order) and has initiated enforcement. Subsequently, the executor secures the property of the debtor and realizes its monetization at auction. The execution of the enforcement auction shall be interrupted if insolvency proceedings are initiated against the debtor in its course.

Procedure:

1. The bailiff will issue a writ of execution for the sale of the property.
2. The property is valued by a connoisseur.
3. The bailiff issues the auction decree, the starting price is determined (typically 2/3 of the estimate price in the first round of the auction). The auction is advertised.
4. The auction takes place online (today the most common form), it can also take place physically.
5. The highest bidder wins and the auctioneer thus acquires the right to transfer ownership, which arises from registration in the Land Registry. The proceeds will fall to the authorized, secured creditor or other creditors registered for enforcement in accordance with the rules of the Code of Enforcement.

Insolvency auction

It is used in the event that the debtor has been declared bankrupt in the course of insolvency proceedings. The auction can take place in the context of bankruptcy (most often), reorganization and debt relief. In this way, the property of the bankrupt debtor is sold and the process is organized by the insolvency administrator and is governed by the Insolvency Act (Act No. 182/2006 Coll.).

It is approached at the moment when the debtor is bankrupt and its situation cannot be addressed by debt relief or reorganization. The insolvency administrator shall propose the monetization of the assets in the form of an insolvency auction.

Procedure:

1. The Insolvency Court will decide on bankruptcy and how to resolve it.
2. The administrator prepares the auction — again valuation of the property and publication of conditions, advertising, determination of the starting price (usually 2/3 of the estimate price in the first round).
3. The auction takes place online (today the most common form), it can also take place physically.
4. The highest bidder wins and the auctioneer thus acquires the right of ownership. The proceeds are distributed among creditors according to the rules of the Insolvency Act.

Voluntary and involuntary auction: when and why they are used

In addition to enforcement and insolvency auctions, legal practice also distinguishes voluntary and involuntary auctions according to Act No. 26/2000 Coll. on Public Auctions.

Voluntary auction in progress at the suggestion of the owner or other authorized persons, typically in conjunction with the debtor, who is interested in selling the property at the highest possible price. In practice, this procedure is often the fastest and most cost-effective way to monetize assets.

Involuntary Auction versa Initiated by the creditorwho must prove an enforceable claim and the existence of a lien on the property.

The course of both types of auctions is similar, the difference lies mainly in who proposes the auction and what is the degree of cooperation of the debtor. In general, auctions can be a relatively quick way of monetization when conditions are met and often come out favorably in terms of transaction costs as well. At the same time, however, it is necessary to take into account legal limits — for example, the risk of interruption of the auction in the event of the initiation of enforcement or insolvency proceedings, or the reduced interest of participants where there is legal uncertainty regarding further developments.

Auction: type of commercial sale

The auction is voluntary and governed by the Civil Code and the contractual terms between the two parties. The goal is to get the highest bid and thus value the property.

As a rule, the auction is public or open to interested parties and can be managed, for example, by a real estate agency. It is realized through Internet portals operated by auction or real estate portal, such as e.g. Proconsul. As a rule, auctions are advertised, anyone from the public can participate in the auction. The auction is completely voluntary and depends on the decision of the owner. Unlike an auction, ownership is not granted by a knock, but only by signing a contract.

What is typical:

• Voluntary sale — the owner of the auctioned property chooses the auction himself
• Offer/Demand — the auction is a contractual negotiation, not governed by a knock
• Starting price the rules are also determined by the owner of the auctioned property
• After the end of the auction The purchase contract is just being signed
• Possibility to withdraw from the sale if the price did not meet expectations

Our goal is the successful completion of the project and the return of the solids

At Investown We do everything we can to get investors back their capital (funds invested). Legal action, which in extreme cases ends in an auction, is only taken after we have exhausted all other options. The whole process is lengthy and challenging for all parties — for us, clients and especially for investors who are waiting for their principal and often delayed returns.

If the project ends up at auction, the proceeds from the sale will be used to pay off the debt. Depending on the price achieved, full or partial repayment of the investment may occur. We have already achieved the first successful auctions in project recovery Apartments Bozi Dar and Residence Nad Lomničkou.

In the event of an auction without the cooperation of the client there is a risk of prolonging the entire process by using various obstructive means. For this reason, the preferred option is the implementation of the sale of the property of the borrower with his cooperation. It may also happen that the property is auctioned for less than the principal amount of the loan (for various reasons, such as fluctuations in supply and demand in the real estate market, etc.).

Also, due to the sensitivity of the whole process, we cannot always give detailed information about its progress. We understand that it raises doubts and a lot of questions. You can be sure that we always do our best to bring these projects to a successful end. Read, how do we proceed when everything does not go according to plan.

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