"Letter of the Law": Debtor’s property to be auctioned off on-line

18 Jan 2012

Debtor’s property sale procedure through e-auctions has been launched by the Supreme Economic Court of the Republic of Belarus to improve the efficiency of the execution proceeding. 

Where to find what shall be auctioned off and what are the rules of e-auctions was discussed within the frames of the regular Letter of the Law release by Pavel Vaskovsky, Court Chief Executive of the economic courts of the Republic of Belarus, Andrey Trubchik, Head of Department for execution of resolutions of the Supreme Economic Court of the Republic of Belarus, and presenter of the program Denis Aleinikov, Senior Partner of «Aleinikov & Partners» law firm (Argument®).

Pavel, someone wrote in preview to our program yesterday that in order to successfully sell anything you need first to effectively withdraw it. Has anything been changed in the system of execution proceeding during this year? Has the level of actually recovered debts increased?

Pavel Vaskovsky: The work of the executive economic courts will be assessed by the Chairman of the Supreme Economic Court in the forthcoming Plenum. That is not to say that the year 2011 has shown a purely positive dynamics. Along with that there have been some changes in the basic activity areas of the Executor Service of economic courts of the Republic of Belarus after adoption of amendments to the Economic Procedure Code and some other legal acts.

In particular, we reduced the rest number of proceedings under execution in service in general and for one executor during the last year. There were about 40 thousand cases in general in the service at the beginning of the year. Each executor had about 600 cases. We reduced the total number by more than 6 thousand. Respectively, the executor could give more consideration to each particular debtor. The number of the completed execution cases has increased. Comparing to the previous year we have completed 7.5 thousand cases more. Apart from that we levied 100 billion rubles more than last year.

What are the main recovery ways which provide the basic proceeds today?

Pavel Vaskovsky: We are working basically with recovery of funds belonging to the debtor today in order to avoid any unnecessary expenses. Withdrawing the property we arrest the property, make its assessment, provide its transportation and sell it, so all the mentioned costs connected with the enforcement shall be laid upon the debtor. Those costs may be excluded if the recovery shall be made against money at the debtor’s disposal.

Well, but if we talk about selling the debtor’s property upon execution proceeding, what is the percentage of funds you are receiving from this measure today?

Pavel Vaskovsky: I cannot name any precise figures, but it makes about 30% of the total recovered amount. May be more, owing to some actions undertaken by us, the enforcement climate has changed at the expense of selling the arrested property. In the result of some execution actions the number of classical auctions has significantly gone up. Their number was 10% last year. We have come up to 14% in the first quarter of this year, and now the figures amount to over 26%.

If off-line auctions are being held so effectively and the amount of proceedings in the result of property recovery and its selling makes 30%, then what’s the purpose of e-auctions? What is the origin of the idea to sell the withdrawn property through e-auctions? Is it a tribute to fashion or are there any vivid explanations?

Pavel Vaskovsky: It is definitely not a tribute to fashion – it is not the first year that the Supreme Economic Court systematically expands the possibilities of on-line interaction with the court system. An electronic service “Debtor Register” appeared at our web-site last summer, for example, and it can be accessed by the subscribers of our official Herald of the Supreme Economic Court (“Vestnik VKhS”)

As far as the auctions are concerned, before choosing a particular way of their effectiveness improvement we have studied the reasons. In the first line, in order to provide that the auctions shall be recognized as taken place transparency and vast advertising of the auctions to be held are of great importance. We published an application, notified the recoverer / the debtor. Most likely, these actions were not enough to catch public interest to the auctions.

The costs for organizing the classical auctions have also caused some anxiety, particularly, as far as it was connected with some cheap and unattractive property. For convenience purposes let’s say we have arrested two chairs and a table and we had to offer them for sale through an auction. The costs resulting from publication of an application, assessment and transportation are rather significant. Holding e-auctions we may reduce the costs connected with transportation and some other expenses. That is why we are actively trying to implement electronic auctions today.


I do agree, Internet today is a unique information provider and it will make the auctions more public and transparent. Probably, it will make possible to minimize a “human-factor aspect” in selling the property…

Pavel Vaskovsky: Sure, I would also add that there is no human factor in holding e-auctions. We have come across the cases of complaints about the quality of holding auctions which had been filed to the executors. Each of us is not an expert in holding auctions. The person holding the position of an executor has not been trained in that area and he is not able to hold the auctions as perfectly as it is shown on TV. He is often confused in the presence of a large number of people. So we can avoid such a factor by implementing electronic auctions.

The facts of corruption and collusion may also take place. And we escape of them at the present moment by means of electronic auctions. The machine will identify the participants.

From the information revealed by you I can underline the following advantages of the electronic auctions in comparison to the off- line sale: publicity, anti-corruption component, economy of funds and the best way of providing the information about the goods to the broad audience. During one of our previous programs you were talking that the problem lies not just in organizing the auctions as itself, but also in the specific character of determining the final cost of the property offered for sale through an auction by the executors. The cost of lots was formed the way that it was too high for them to be much in demand. Have you already come to any decision in respect of determining the final cost?

Pavel Vaskovsky: We have worked upon this problem. At the present moment we are intensively studying the notion of determining the cost of property itself in its selling within the frames of the execution proceeding. We have modified the previously existing formula of final cost of the property offered for sale. It was the basic cost determined by the expert plus VAT added by us. If the property was sold through an auction we added the first step amounting to 5%. We removed the intermediate VAT layer in amount of 20% by now. This step has been agreed with the Ministry of Taxes. We have come to the conclusion that taking into consideration the current Tax Code the turnover of property sales connected with VAT calculation and payment stem from the property owner who is the debtor. So VAT payment shall be part of his duty.

What shall be the system of selling the debtor’s property through the e-auctions? What shall be the layout of its work?

Andrey Trubchik: Regulation on Holding Electronic Auctions has been adopted by now. The point is that any natural or legal person may participate in the auction the information of which has been posted in the internet-portal of the economic courts. There is a link “electronic auction” in the official portal, so if you follow it you can see the lots catalogue offered for sale in the e-auction. If you are willing to participate in the auctions you may file a participation application, make payment in amount of 10% of the property cost to the deposit account of the economic court and participate in the auctions within the determined terms.

Then the parties shall hold the auctions in the on-line mode and place stakes within 10 days. Upon expiry of this term the winner who has placed the highest stake shall be determined. After complete payment for the property he will receive the documents and the property may be picked up.

Has any single sale been made?

Andrey Trubchik: No, the service started working on November 30, 2011. There are three lots now and today is the last day of placing participation applications for the auctions. We hope to hold several electronic auctions by December 31.

What is the authorization procedure for the participants in the system? Shall the participant acquire the electronic digital signature means?

Andrey Trubchik: We have decided not to implement the e-signature yet. A Login and a password shall be assigned to the participant after the participant has filed his participation application in the internet-portal of the economic court, and the executor has checked and processed it. Then a login and a password shall be assigned to the participant, by means of which he can go through authorization by entering the data and participate in the auctions.

Implementing this approach can you be sure that no one participant may bid from three computers simultaneously?

Andrey Trubchik: The preventive measure is payment of 10% of the property cost. After the application has entered the executor shall check the person who paid the money. Even more, when the application is being filed some data shall be indicated which are to be checked by the executor then. The legal entity shall indicate its UNN.

I have studied the similar auction system in the Russian Federation – electronic trading facility where the debtor’s property in bankruptcy will be sold. The auction participant shall get acquainted with the authorization rules, fill in the respective electronic forms and then come to one of the authorization centers and buy an e-signature. He can enter the system using its e-signature. We have something alike: the similar procedure is implemented in registration of individual entrepreneurs and unitary enterprises.

Andrey Trubchik: We have decided not to implement the system because the auction participants shall bear additional costs for acquiring an e-signature.

Pavel Vaskovsky: There is one more principle which is in effect: we would prefer not to disturb the auction participants without need. We are interested that the auction participant shall make no any additional steps.

May be it would be reasonable to implement unification of e-signature usage? Then the acquired e-signature used by the person for electronic declaration or for the state registration on-line may be used for authorization in your system, so the people wouldn’t need to go anywhere additionally.

Andrey Trubchik: And those not having it will have to come to us and go through authorization procedure.

Pavel Vaskovsky: We don’t have any difficulties with that now: any natural person, a non-resident may participate.

Is it possible to grant an advance using web-interface: web money or anything of the kind? How will the money be transferred?

Andrey Trubchik: At present it is just a simple transfer to the deposit account of the court, an off-line transfer.

It is supposed that there will be only one trading facility - trading facility of the Supreme Economic Court, won’t it? Has it been also planned to use any internet facilities of commercial organizations for organization of the auctions?

Pavel Vaskovsky: We have had such an idea as well, we studied this issue. Apart from that we were talking with TUT.BY, but at the present moment we have come to a decision to try just our facility to evaluate this way of selling the arrested property.

Andrey Trubchik: The possibility of holding auctions using other facilities has been stipulated in the text of the Regulation. If we see that it works, we will move towards this direction.

An organization in Russian Federation shall be accredited by the Ministry of Economic Development if it corresponds with the criteria, so it will be granted the right to act as such a facility. By today there has already been some state and private working facilities for holding electronic auctions. May be it would be easier for you to join any working facility, wouldn’t it? It is good having a lot of facilities.

Pavel Vaskovsky: Advantage of using our trading facility is that all the property to be sold will be accumulated at one place. Any potential participant of electronic auctions won’t need to scatter among all the facilities to find the needed property.

We have started with the publicity approach as one of the goals to reach the effectiveness of the auctions. In order to implement this approach people at large shall be aware that there is a possibility on your web-site to participate in the electronic auctions. How do you intend to inform them about that? If the links of your portal were seen in the other actively used internet portals, this information would reach its user faster.

Pavel Vaskovsky: We do understand that and work upon this problem. We conduct negotiations on placing advertising of our electronic facility in the sites of OAO “Belarusian Universal Commodity Market” (ОАО "Белорусская универсальная товарная биржа") and RUP “National Marketing and Price Trend Centre” (РУП "Национальный центр маркетинга и конъюнктуры цен").

The electronic trading system for selling the debtor’s property in execution proceeding has been working in Armenia for two years already. Have you analyzed whether the efficiency of selling the property was improved in that country?

Pavel Vaskovsky: We study the international experience; we interact with Russians, Armenians and Kazakhs. Having studied their experience we have come to a conclusion: we still need to do a lot. We have become interested in the issue of initial implementation of the correction coefficient in selling the property. This function has been stipulated by the laws of Armenia. They offer the property for sale the cost of which has been determined by the market by means of implementing a decreasing coefficient. There is just 75% of the nominal value left, so that is the purpose of bidding to make people bargain on price and get interested in acquiring the property.

Andrey Trubchik: We do not have any statistical data on work of other countries’ facilities. A representative of ours has just recently been in Armenia at the international seminar. They are very happy about that facility and the property sales have gone up enormously. Actually all the property is being sold by means of electronic auctions in Armenia.

Pavel Vaskovsky: Our Armenian colleagues have shared their secret and told us that the efficiency of sales of the arrested property has increased many times due to the electronic trading facility.

Summing up, I would like to ask you what on-line projects do you intend to develop in the future?

Pavel Vaskovsky: Next task shall be creation of electronic records management. It would be correct to afford an opportunity for the participant to have access to the electronic materials of the execution proceeding. A lot of work shall be done for that, but we are ready to do it.

Talking about the practical work, electronic systems can be applied in many ways. For example, implementing electronic notification procedure for the parties to inform of the procedural actions. Apart from the electronic auctions, it is necessary to proceed with the work on improvement of sales efficiency in regard to the arrested property. Notwithstanding that the preventive enforcement measures and additional money search measures in possession of the third parties which are implemented today by the executors, turn to be rather effective. But we need to work on improvement of execution efficiency, for example, developing internet-shops.

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