Insolvency and liquidation auctions: how the sale works, and who decides

Who sells, and under which law

In a sequestration the insolvent is never the seller. Sequestration takes the estate away from the insolvent and vests it in the Master of the High Court until a trustee is appointed, and then in the trustee (section 20(1)(a) of the Insolvency Act). In a liquidation the directors do not sell either: the liquidator sells the company’s property on its behalf. In business rescue the company itself sells, under the practitioner’s control.

Companies run on a parallel track. The 2008 Companies Act kept Chapter 14 of the old 1973 Act alive for winding up companies (item 9 of Schedule 5), and section 339 of the 1973 Act applies insolvency law to an insolvent company on any matter the Companies Act does not specially provide for.

Business rescue is not a liquidation. The company carries on under a practitioner while a plan is developed to rescue it or, failing that, to give the company’s creditors or shareholders a better return than an immediate liquidation would (section 128(1)(b) of the 2008 Act). Deceased estates are wound up by an executor instead; see selling deceased estate property.

How stock reaches the auction

For a sequestrated estate the path runs roughly like this; liquidations are similar, with liquidators in place of trustees.

1. The order. A court sequestrates the estate or winds up the company. A company can also be wound up voluntarily by special resolution.
2. Provisional trustee. The Master may appoint one, who holds office until a trustee is appointed (section 18(1)).
3. Inventory. The sheriff attaches the movable property and makes an inventory of it (section 19(1)).
4. Possession and valuation. The trustee takes control of the movables and records, and gives the Master an appraiser’s valuation (section 69(1)).
5. First meeting. Creditors prove claims and elect a trustee (section 40(1)).
6. Second meeting. At least 14 days before it, the trustee sends creditors a report, the inventory, the valuation and recommended resolutions, including how to sell (section 81(1)bis, Insolvency Act). The creditors then give directions.
7. The sale. The auctioneer catalogues, markets and sells.
8. The account. The trustee lodges a liquidation and distribution account with the Master within six months of appointment, unless extended (sections 91 and 109).

Not everything in the estate reaches the sale

• Personal items. The insolvent keeps clothing and bedding, and the household furniture, tools and other essential means of subsistence that the creditors allow (or the Master, if no creditor has proved a claim) (section 82(6)).
• Secured movables. A creditor holding movable property as security must give the Master and any trustee written notice before the second meeting. If the trustee does not take the property over within seven days, the creditor may realise it before the second meeting, ordinarily by public auction after giving the trustee a chance to inspect it. Anything not realised by then must be handed to the trustee for the estate (section 83).
• Financed goods. An instalment agreement gives the finance house a hypothec on sequestration, and it can require the trustee to hand the goods over and then realise them under section 83 (section 84). So a financed vehicle may be sold by the finance house rather than at the trustee’s auction.

We do not hold bank repossession contracts; our vehicle stock comes from liquidations, insolvent and deceased estates, business rescue, company fleet disposals and government disposal programmes.

Why insolvency sales so often go to public auction

Partly because the law says so. If the creditors have given no directions by the close of the second meeting (and the Master has not stepped in, as explained below), section 82(1) of the Insolvency Act requires the trustee to sell by public auction or public tender, advertised in the Government Gazette plus any other notices the Master directs. If the creditors have not set the conditions of sale, the Master does.

Tenders are sealed, lodged with the Master (or a magistrate the Master names) and opened together. After opening, no further offer may be considered: the trustee accepts the best tender, or rejects them all and sells by public auction, unless the creditors or the Master direct otherwise (sections 82(2) and 82(5)).

Creditors can choose other routes, and a properly authorised liquidator may sell “by public auction, public tender or private contract” (section 386(4)(h) of the 1973 Act). Auction still tends to win:

• A price nobody set. An open, advertised, competitive sale is hard to attack later as an undervalue.
• Time costs the creditors. The cost of maintaining, conserving and realising property comes out of its proceeds (section 89(1)), so every month of security, insurance and rates reduces the dividend.
• A paper trail. The liquidation account must record every amount received and paid out (section 92). We give practitioners a written report on what each lot achieved, the marketing and the bidder registration record.

Property typically runs about three to four weeks from signed mandate to auction day, and movables can be quicker, though in an insolvent estate the meetings and notices often set the earliest date.

Creditors’ directions, the Master and early sales

Trustees

At the second meeting the creditors may direct the trustee on matters in the report, including how the estate is realised (section 81(3)(a)). If they give none, a resolution the trustee recommended counts as passed if the Master approves it, and the Master may give directions of his or her own, which bind the trustee (section 81(3)(b) to (d)).

Waiting is not always sensible: stock spoils and empty buildings get stripped. Section 80bis lets the trustee recommend an earlier sale to the Master in writing, with reasons. The Master may authorise it on conditions he or she sets, but not for property subject to a right of preference unless that creditor consents in writing or the trustee guarantees that creditor against loss.

A provisional trustee may not sell estate property without the authority of the court or the Master, and then only after the notices and on the conditions the Master directs (section 18(3)).

Liquidators

In a winding-up by the court, a liquidator has no inherent power to sell: that power comes from resolutions of creditors and members (or contributories), or from the Master’s directions under section 387 (section 386(3)(a)). The Supreme Court of Appeal set this out in Chater Developments v Waterkloof Marina Estates (2014). In a solvent company’s voluntary winding-up, the liquidator may exercise those powers without a court order, subject to any directions from the shareholders or the creditors (section 80(5) of the 2008 Act).

Where property must be sold before the meetings can give that authority, a liquidator can ask the Master to authorise the sale (section 386(2A)). If the Master refuses, the court can be asked to extend the liquidator’s powers, but only on exceptional circumstances. The Free State High Court found such circumstances in Noordman NO v Knipe (2014), where provisional liquidators had carried the costs of the administration for about two years and needed to sell the companies’ two farms to pay them.

So have the authority in writing before the catalogue goes out: our mandate confirms the seller’s entitlement to sell before anything is marketed.

Business rescue disposals

Because business rescue aims to keep the company alive, the Act limits disposals. During the proceedings the company may dispose of property only (section 134(1)(a)):

1. in the ordinary course of its business;
2. in a bona fide transaction at arm’s length for fair value, approved in advance and in writing by the practitioner; or
3. as part of implementing a business rescue plan approved under section 152.

Property over which someone holds security or a title interest needs that person’s prior consent, unless the proceeds will fully discharge the debt it secures. The company must then promptly either pay that person the sale proceeds attributable to the property, up to the amount it owes them, or give security for those proceeds to that person’s reasonable satisfaction (section 134(3)).

The practitioner has full management control in place of the board (section 140(1)(a)). Creditors vote on the plan, and once adopted it binds the company and every creditor (section 152). Disposing of all or the greater part of the assets or undertaking under an adopted plan does not need the shareholders’ special resolution that sections 112 and 115 otherwise require (section 112(1)(a)).

Buying from a company in business rescue? Ask which route the sale falls under, and to see the practitioner’s written approval or the plan provision behind it. Selling a whole business is covered on our business sales page and in our guide to selling a business as a going concern.

What practitioners should have ready

We act for trustees, liquidators and practitioners on property, vehicles, plant, machinery and contents, and can run property and movables on one coordinated timeline. To start, have these ready:

• Your certificate of appointment (or, in business rescue, proof of appointment)
• The court order or resolution placing the estate in sequestration or liquidation
• The authority to sell: the creditors’ resolution, the Master’s authority, or the practitioner’s written approval
• The asset register or inventory, including the sheriff’s inventory if there is one
• Details of secured creditors and any perfected security, and their consent where the sale needs it
• Access arrangements for viewing and collection

Before any asset is marketed we take a signed mandate confirming who is entitled to sell, and we verify ownership against the deeds record for property and against registration and eNatis records for vehicles. If you need a figure for the creditors first, we provide written valuations and inspections.

Not sure the assets justify an auction? Phone us on 086 155 2288: half an hour usually settles it, and there is no charge for that conversation. See also deceased and insolvent estates.

What buyers should expect

A seller who knows very little

The trustee or liquidator never lived in the house or drove the truck. Expect thin history: the seller usually cannot tell you much about how the asset was used or kept. Our assets are sold voetstoots, as they stand, unless the conditions of sale say otherwise for a lot, so the viewing is your inspection (see voetstoots explained).

Payment on the day, and short deadlines

The successful bidder pays the deposit at the fall of the hammer, any buyer’s commission as the conditions of sale set out, and the balance (or, on property, a guarantee for it) within the period in those conditions. Movables also carry a collection deadline. Percentages and periods vary per auction. Arrange any bond before you bid: see buying with a bond and the buyer’s premium.

Confirmation

Some insolvency sales are concluded subject to confirmation within a stated period, for example where the highest bid falls short of the reserve or a secured creditor has to consent. The conditions of sale then say who confirms, by when, what binds you meanwhile and what happens to your deposit if the sale is not confirmed (see the reserve price guide).

Who may not buy

The trustee, the auctioneer employed to sell, and their spouses, partners, employers, employees and agents may not acquire estate property unless a court confirms the acquisition (section 82(7)). That rule covers our own staff at any sale we run for a trustee.

If the seller lacked authority

A buyer outside that list who purchased in good faith is generally protected if the property was sold in breach of section 82: the purchase stands, and the person who sold it must make good twice the estate’s loss (section 82(8)). The Supreme Court of Appeal applied this to insolvent company liquidations in Chater Developments. A buyer who knew the sale was unauthorised should not count on it.

Property, occupation and costs after the hammer

• Rates. In an insolvent estate, rates for up to two years before sequestration, and from sequestration until transfer, are costs of realisation paid from the proceeds, and once the trustee pays them, a law blocking transfer until rates are paid does not stop the transfer (sections 89(1) and 89(4), Insolvency Act). Other municipal charges, levies and compliance certificates follow the conditions of sale; ask the conveyancer.
• Occupation. No one may be evicted from their home without a court order (section 26(3) of the Constitution). If the insolvent or a tenant still lives there, check whether the conditions promise vacant occupation or leave that to you (see buying repossessed property).
• VAT or transfer duty. A property sale attracts either VAT or transfer duty, not both. The conditions of sale say whether the price includes VAT; see transfer duty in South Africa.
• Transfer. It runs on the normal conveyancing timeline once the deposit is paid and the balance secured, typically two to three months (see what happens after you win).

Before you bid

1. Read the conditions of sale and the rules of auction: deposit, commission, payment period, confirmation, collection and VAT.
2. Attend the viewing, and take an expert for anything costly.
3. Check what is included: fixtures, accessories, and anything a third party may own or claim.
4. Have your FICA documents ready and register before bidding opens (how to register and bid online).
5. Set your limit after costs, and stop there.

See what is catalogued on upcoming auctions, and the rest of the process on buying on auction.