Definition and Significance of Private Sale
Der private sale is a term from German enforcement and insolvency law. It refers to the sale of an asset outside of a public auction, by direct negotiation with one or more interested parties. Unlike a public auction, a private sale is conducted without formal proceedings, although certain legal framework conditions are regularly required to be observed. The term is used in various areas of law and is particularly relevant in connection with enforcement, insolvency proceedings, and the realization of collateral.
Legal Basis of Private Sale
Application in Enforcement Law
Within the scope of enforcement, a private sale may be carried out instead of a compulsory auction, provided the law permits or the enforcement court orders it. This is especially relevant when seizing movable property, claims, or other property rights.
Legal Requirements
- Consent Requirement: According to section 825 of the German Code of Civil Procedure (ZPO), the debtor may object to the private sale within a period prescribed by the court. If this is not the case, the private sale may proceed with the creditor’s consent.
- Valuation Criteria: The sale must not take place below the appraised value, unless the court grants an exemption.
- Procedural Regulations: The proceeds of the sale are used to satisfy creditors’ claims and cover procedural costs.
Advantages and Disadvantages
An advantage of private sale is that, under certain circumstances, a higher return may be achieved compared to a public auction. Moreover, a faster and more flexible process can be facilitated compared to formal auction proceedings. However, a disadvantage lies in the risk of a lack of transparency or potential disadvantage to other parties involved.
Private Sale in Insolvency Proceedings
Private sale also plays a significant role in insolvency law (§ 166 InsO). The insolvency administrator is entitled to sell assets from the insolvency estate privately, as long as no creditor objects and the process is not subject to objection.
Admissibility and Execution
- Involvement of Creditors: The interests of the insolvency creditors must be taken into account; a sale below the economic value may only take place with court approval and the consent of the parties involved.
- Distribution of Proceeds: The proceeds from the sale become part of the insolvency estate and are to be distributed among all creditors.
Private Sale of Collateral
In the area of security interests, particularly with retention of title and assignment for security, the private sale also plays a key role as a method of realization.
- Process: After the security event occurs, the secured party may sell the collateral privately, provided no differing contractual agreements have been made.
- Protective Mechanisms: The security provider is usually to be informed of the sale and is entitled to any surplus proceeds after the secured claim and realization costs have been settled.
Distinction from Public Auction
The private sale differs in particular by the absence of a public auction and bidding procedure compared to the classic method of realization. Pricing is determined by negotiation, not by competitive bidding. Public transparency and competition are ensured to a lesser extent than in an auction, which, depending on the legal area, can be compensated through additional protective measures.
Practical Areas of Application
Enforcement of Movable Property
When enforcing liens on movable property (such as vehicles, machinery, or valuables), a private sale is frequently used to achieve the best possible price where there is particular interest.
Real Estate and Land Charges
In special exceptional cases, the private sale of a property is permitted as part of the realization process, for example if this would achieve a higher return than a compulsory auction and there are no overriding interests to the contrary.
Corporate Insolvency
In a corporate insolvency, facilities, inventories, or even business units can be sold privately with the consent of the creditors’ assembly to ensure effective realization of assets.
Legal Protection Provisions and Controls
Despite its flexibility, a private sale is subject to certain control mechanisms to protect the rights of third parties and prevent abuse.
Consent Requirements
Certain forms of private sale require court or creditor consent, particularly if assets are to be offered below the estimated value.
Risks of Challenge
Transactions in connection with a private sale may be subject to insolvency clawback (§§ 129 ff. InsO) or challenge under enforcement law, especially where creditor disadvantage is to be feared.
Documentation Obligations
To ensure traceability and to review the adequacy of the sale proceeds, documentation obligations are often imposed, such as a comprehensible presentation of the efforts made to achieve the best possible price.
Summary
The private sale is a flexible and legally complex instrument for the realization of assets outside of a public auction. While it is used in a variety of legal fields, especially enforcement, insolvency proceedings, and realization of security, it is subject to certain statutory framework conditions for the protection of parties involved and the general public. The process is carried out in accordance with procedural and substantive law requirements, whereby flexibility and efficiency must be balanced with transparency and creditor protection.
Frequently Asked Questions
What legal requirements must be met for a private sale?
A private sale generally requires authorization to sell the asset. In many cases, the private sale is an alternative to public auction, such as in insolvency proceedings, estate administration, receivership, or lien realization. The relevant statutory regulations can be found in particular in the Insolvency Code (§ 165 InsO), the Civil Code (especially § 1235 BGB), the Code of Civil Procedure, as well as in special statutes. In practice, all creditor interests must be protected; often, a private sale requires the consent of the insolvency administrator, probate court, or another competent authority. The parties must ensure that the sale is conducted ‘at the best possible price’ to avoid disadvantaging creditors. Transparency of the procedure and, if necessary, the possibility to substantiate the market value by means of expert opinion are also required. A private sale is excluded in particular if a compulsory auction has already been legally ordered or would take precedence procedurally.
Who is authorized to conduct a private sale, and what role do courts or administrators play?
The authority to carry out a private sale usually lies with the owner but can transfer to others due to legal provisions. In insolvency proceedings, the power rests with the insolvency administrator, sometimes involving the creditors’ committee. In receivership, these duties can be assigned to the receiver. For estates, the authority may depend on the rules of the probate court or an executor. In certain cases—for example, in realization of liens—the lienholder may be authorized with the debtor’s consent. Courts typically assume an oversight and supervisory role; they check that all legal requirements are met and that there are no conflicts of interest. In sensitive cases, such as the protection of minors or very valuable assets, additional court approval may be required.
What formal requirements must be observed in a private sale?
The formal requirements depend on the type of asset being sold and the relevant statutory provisions. In general, there is no universal form requirement, but there are often special requirements: Section 311b BGB, for example, requires notarial certification of the purchase agreement for real estate. The sale of business interests, GmbH shares, or other rights requiring registration may also require notarial form or special registration. For movable property, a simple purchase agreement—often even oral—is sufficient unless otherwise provided. In public-law realization procedures (e.g. under insolvency law), documentation obligations must also be observed to ensure verifiability and appropriateness of the sale price and the selection process. Violation of formal requirements can result in the sale being void or contestable.
How is the appropriate purchase price determined in a private sale?
Determining the appropriate purchase price is a central legal requirement for safeguarding creditors’ interests and avoiding challenges. As a rule, the market value is used, ideally established by an independent expert appraisal. Especially in insolvency or receivership proceedings, courts require careful review of market value and, if necessary, broad public marketing of the assets for sale to attract sufficient interest. Documentation of the selection process and offers received is particularly critical so that it can later be objectively shown that the private sale did not harm the creditors and a market-compliant price was achieved. If the sale takes place significantly below market value, there is a risk of legal challenges or liability claims against the responsible persons.
Can conflicts of interest or liability risks arise?
Yes, in a private sale, there is always a liability risk for administrators, trustees, or other office holders if the sale is unlawful, inadequately documented, or detrimental to the creditors. Those responsible are obliged to ensure a transparent sales process, review all relevant offers, and if necessary, obtain the consent of all parties involved or official approval. Conflicts of interest—such as between administrator and buyers who are related parties—should be disclosed, and, where appropriate, an independent decision-making body involved. Failure to fulfill these duties of care can result in recourse claims and other legal consequences.
In which cases is a private sale excluded or restricted?
A private sale is excluded, or at least restricted, if mandatory legal provisions or court orders take precedence. For example, in a compulsory auction, the award at the auction appointment is generally the primary procedure. If a creditor has an explicit right or request for public auction, a private sale is not allowed. In addition, if there are insolvency waiting periods, protective measures, or pending disputes concerning the asset, a private sale is usually impermissible at least until these are resolved. Furthermore, for protected assets—such as those in estate management for minors or mentally impaired persons—court approval is generally indispensable.
What challenge options exist after a private sale?
Private sales can be challenged if they were conducted in violation of statutory provisions, particularly to the detriment of creditors or in breach of formal requirements. The right to challenge usually lies with the directly affected creditors, and possibly with other parties involved in the proceedings. In insolvency law, there are special grounds for challenge, for example, in cases of undue disadvantage or impermissible self-dealing (§ 133 ff. InsO). Civil law challenges are also possible on grounds of fraud, duress, immorality, or incapacity. As a result, the sale can be reversed or damages claims asserted against the responsible parties. The deadlines and requirements depend on the relevant legal grounds and are often strict.
