Selling by auction has, for centuries, been one of the best methods known to man of establishing the true value of assets. 

Prospective purchasers, invited by means of advertising and direct mailing, attend at a particular venue on a particular day and bid for the item or items for sale.

Normally, the highest bidder acquires the item being offered and its actual value at that time is established beyond doubt. 

Auctions of fine art, jewellery and furnishings have hit the headlines when prices far in excess of expert estimates have been attained as a consequence of intense competitive bidding. 

The difficulty of estimating value makes the auction method an extremely acceptable way of realising the assets of a company in a recovery situation because the creditors involved can see for themselves that a proper price has been obtained in open and public conditions. 

It is of course important, therefore, that the auction is properly organised and that it is publicised as widely as possible commensurate with the anticipated realisation.

Adequate
If the subject matter is of interest to a European or Worldwide market then it is of prime importance that adequate time is allowed prior to the auction date for the publicity to mature. 

The expertise of an Insolvency Practitioners Agent in marketing can, therefore, have a dramatic effect on the success or otherwise of a particular sale.

The auctioneer’s experience and skill is also a vital ingredient and his ultimate weapon is the correct use of a reserve price and his ability to decide under certain circumstances nor to sell to the highest bidder, if, in his view, a reasonable value has not been obtained. 

Electronic notification via email has considerably increased the speed by which prospective purchasers are notified worldwide. 

Nevertheless time is still required in order that absentee purchasers can arrange inspections, obtain board approval and put finance in place in order to bid effectively on the auction day.

Once a prospective purchaser has done his homework and raised the necessary finance he can then these days bid via a webcast auction facility which is now normally available in addition to telephone bidding. 

This enables real time bidding and access via computer to the progress of the auction.

The ability and expertise of the auctioneer is often under estimated.  The ability to become an accomplished auctioneer is in fact a gift and the role requires intense concentration at all times and the appropriate use of the auctioneer’s right to bid on behalf of the vendor. 

The skills required take years to achieve and can only be acquired by shadowing and learning from an experienced professional auctioneer.

When Land and Buildings are involved, these can also be offered for sale by auction immediately prior to the plant and machinery and stock. 

The benefit of selling premises by auction should not be underestimated as once the highest bid is accepted a binding contract is created, a deposit is paid and completion normally takes place within four weeks. 

The very real problem of agreeing a private sale only to find in time that the prospective purchaser does not proceed is therefore avoided.

Piecemeal
Whilst the auction method is normally used to realise the value of a company’s assets on a piecemeal basis, it is also suitable as an aid to facilitate the realisation of the assets for continuity. 

The auction date dictates the deadline by which prospective purchasers of the business have to make up their minds and the phrase “unless sold previously for continuity of production” incorporated in the publicity allows the vendor to effect a sale of the assets as a whole at any time prior to the auctioneer taking the rostrum; hesitant purchasers must therefore show their true intent. 

IPs usually market the assets for continuity for a period prior to instructing the auctioneer. 

It is the writer’s view that in certain cases the auctioneer should be involved at the very first opportunity following the decision to close a manufacturing facility in order to save valuable and costly time in the event of a sale for continuity by private treaty not maturing. 

If the method briefly outlined above is used, the effort to effect a sale as a whole for continuity can continue and run in tandem with the auction preparation, thus ensuring full exposure to the potential market and a sale by whatever means within a reasonable period. 

Reducing
The practice of selling off certain company assets, prior to auction, on a piecemeal basis should be resisted and considered carefully as this can have the effect of reducing the auction occasion; whilst individual prices are of course, important, the total realisation is what really matters. 

The effect that the sale of certain prime items can have on the overall result cannot always be foreseen.

It is common for speculators/dealer auctioneers to approach an IP with one lot bids and, having successfully acquired the assets, then arranging a piecemeal auction for the sole purpose of  producing a quick profit. 

There are a number of very adept firms now in the market place operating this system and such approaches should be considered very carefully.  Acceptance undermines the principle that creditors should benefit in full from the sale of company assets.

Tender
Sales by tender or online sales are also often used in a disposal situation but it should be said that these methods often result in a lower proportion of the assets being sold. 

There is no substitute to the occasion of the live auction (coupled with a webcast facility) and the open way in which assets are seen to be sold.  

In conclusion, the writer commends the proper use of the auction method to Insolvency Practitioners.  The care taken in the preparation of particulars and catalogues and the auctioneer’s skill in controlling matters is vital to its success. 

Peter J Sayle is the Managing Director of the Corporate Services Division of Sanderson Weatherall Ltd 

T +44 (0) 161 615 7055
F +44 (0) 161 615 7007
E peter.sayle@sandersonweatherall.com.