Part 1 Auctioneers
It is normally advisable to employ an auctioneer to realise, or to advise on the commercial value of an asset or method of realisation, unless the amount likely to be realised will be substantially or completely absorbed by the auctioneer’s charges. Regard should be had to the matters set out in Chapter 32.1, in particular paragraphs 32.1.9 – 32.1.10, including the funds available to meet the costs to be incurred. See also Chapter 36, paragraph 36.30. For more detailed instructions on the realisation of specific assets see Chapter 31.
The Service does not have a centrally agreed contract with one particular auctioneer and the official receiver should use a suitable local auctioneering firm. If the official receiver requires advice concerning matters relating to formal tendering processes, contracts or contractual arrangements with agents, he/she should refer the matter to PSP.
If the assets to be disposed of are situated in an area of the country dealt with by another official receiver, inquiries should be made of that official receiver to obtain details of the local auctioneers used by him/her in the area in question.
Where assets are of a specialised or unusual nature (e.g. paintings, antiques, precious metals and stones, stamp collections, musical instruments, high value furs), specialist auctioneers should be employed to deal with the assets. The official receiver may consider employing his/her usual auctioneers if they are able to deal with the specialised, high value or unusual asset (s), or the agents may then instruct specialists as sub-agents to deal with specific items. This will overcome the need to request a bond or insurance from specialists not employed frequently.
The exception to the official receiver’s usual agents instructing sub-agents (as detailed at paragraph 32.3.9) is where the official receiver is required to dispose of waste. As this can only be handled by a licensed agent, (see Chapter 82, paragraphs 82.13 – 82.15), the official receiver can only use his/her usual agents if they are licensed to deal with the waste concerned. If the usual agents are not licensed to deal, they cannot sub-contract a specialist firm to dispose of the waste, the official receiver must instruct a specialist waste management firm directly.
For information generally on Environmental Legislation and disposal of waste see Chapter 82.
The official receiver should seek adequate security from auctioneers whom he/she employs, to ensure the assets and funds of insolvents in the hands of agents are reasonably protected, and losses minimised in the event of the failure of an agent. This can be done in the form of a fidelity bond with an approved guarantee society (generally one of the major insurance companies). If an auctioneer is unwilling to provide a bond but offers alternative security, e.g. professional indemnity insurance (see also paragraph 32.3.14) the official receiver may accept the alternative, provided the protection afforded is the same as that covered by a bond. He/she should review the protection offered, to ensure that the security reflects his/her needs when compared to the value of assets and funds held by the auctioneer on behalf of the official receiver. See also Chapter 32.1, paragraph 32.1.7 regarding the bonding of auctioneers and valuers.
Whilst auctioneers used regularly should produce a copy of their fidelity bond or alternative protection annually, if the official receiver is satisfied that the agent(s) used is reputable and has been dealt with in good faith over a long period, and he/she is sufficiently well covered for any loss that may occur, then the official receiver is not required to insist on annual verification of the bond. Those who are not used on a regular basis should provide a copy of their bond or insurance prior to their employment .
The official receiver should be aware that some bonds and insurance policies held by agents contain an excess clause, which could mean for example, if the policy excess is £2,500, the first £2,500 of every claim will not be met by the insurers. He/she should establish whether an excess clause would apply to a claim made by him/her on behalf of multiple estates, or in respect of each estate. Official receivers should ensure that the maximum amount which can be claimed under a bond/policy is sufficient to provide the level of cover required for the estate(s) concerned. To remove or reduce an excess on a bond/policy is likely to require payment of an additional premium.
In some instances, official receivers have relied on the fact that their agents are bonded by virtue of their membership of a professional body. The majority of these schemes do not protect losses following straightforward financial failure of a member. Details of some of these professional organisations, which provide insurance schemes for current members, are listed below. These organisations can also be consulted should it become necessary to establish membership of an agent, or the official receiver requires a replacement agent.
The Royal Institution of Chartered Surveyors (RICS)
For a direct link to information on professional standards and indemnity insurance go to http://www.rics.org/site/scripts/documents_info.htmx?documentID=175
Note: The Incorporated Society of Valuers and Auctioneers (ISVA) merged with RICS in 2000
The National Association of Estate Agents (NAEA)
(This provides a direct link to information on codes of practice)
The National Association of Valuers and Auctioneers (NAVA)
(This provides a direct link to information on codes of conduct)
If the official receiver has serious doubt about the effects of any conditions in a bond or alternative security, he/she should seek an alternative agent.
Other steps the official receiver should consider to protect funds in the hands of auctioneers, are the requirement that funds are kept in a dedicated client account in favour of the official receiver, and ensuring that the auctioneer is required to remit the funds to the official receiver within a set time (e.g. three weeks from the date of sale).
The official receiver should agree terms and rates of fees to be charged in advance of his/her employment of an auctioneer. Where an auctioneer acts on a regular basis the official receiver should seek to agree standard terms with him/her. Where the benefit to the estate is likely to be small the official receiver should try to agree a nominal fee. Precise instructions should be given to the auctioneer as to the detail required before ordering an inventory or valuation to avoid an unnecessarily high charge for an inventory (see Chapter 8, paragraph 8.63)
The official receiver should always confirm verbal instructions in writing and provide precise details of the assets involved and of the terms of the employment. Wherever assets are to be sold by auctioneers the official receiver should inform them whether or not the insolvent is registered for value added tax so that where necessary value added tax is charged when assets are sold. The employment of auctioneers should be noted on LOIS (CA08 & CA15 to record the asset) and in the record of handover to an insolvency practitioner (form IPROH).
If an auctioneer advises advertisement of a sale of assets, then the official receiver should have regard to the nature and extent of advertising to be undertaken. The official receiver should be satisfied that it will be effective and that the cost does not exceed the likely benefit to the estate. Any advertisement should be placed by the auctioneer.
Reference should be made to Chapter 32.1 regarding accounting for realisations and payment of auctioneering costs. Assessment of costs (previously referred to as “Taxation of costs”) is dealt with in Chapter 39, in particular with regard to the employment of agents at paragraphs 39.6 - 39.14