Selling property from an insolvency estate: private sale instead of forced auction

For property in an insolvency estate, the appropriate disposal method depends on the legal framework, creditors’ interests and market conditions. A private sale may offer greater flexibility in buyer outreach and negotiations. The suitable approach depends on the individual proceedings.

This article orders the two routes, shows how the mortgage creditors and the creditors’ committee are to be involved, how realisation by private sale proceeds – and why the real bottleneck is almost always fast access to buyers who actually acquire such assets. A documented market process protects not only the proceeds but also the administrator.

Two routes to realisation

For real estate in the estate there are essentially two forms of realisation. They differ in the level of proceeds, speed, control and discretion:

Why a private sale usually brings more

The forced auction is a public, formalised procedure – and precisely that regularly depresses the proceeds: the circle of bidders is smaller, the asset is auctioned “as it stands”, and the public announcement tends to deter rather than drive the price. A private sale, by contrast, makes it possible to prepare the asset deliberately, select the right buyer, negotiate terms and control the timing. The result is usually a price closer to market – to the advantage of everyone involved, from the secured creditors to the free estate.

Bringing the secured creditors on board

A private sale only works free of encumbrances – and for that the creditors secured by mortgages have to release their rights. In practice this happens against payment of the share of proceeds attributable to them; in return the administrator negotiates a contribution to the costs of the estate so that the estate also participates in the realisation. The decisive lever in this negotiation is section 165 InsO: the administrator may pursue the forced auction of the immovable asset even where a right to separate satisfaction exists. With this alternative in reserve, the private solution is usually the more economically sensible one for the mortgage creditors – because they would often be worse off at auction.

There is also the question of consent within the proceedings: the disposal of real estate is a particularly significant legal act; an appointed creditors’ committee – or failing that the creditors’ meeting – has to be involved under section 160 InsO. A cleanly documented sale process makes this consent considerably easier.

How realisation by private sale proceeds

1. Take stock: Clarify the land register, encumbrances, tenancies, condition, outstanding charges and the tax position.
2. Establish the value: Determine a market-oriented value and the achievable price via the income or comparison approach.
3. Approach the secured creditors: Sound out their willingness to release and the contribution to the costs of the estate.
4. Search for buyers in a targeted way: Bring the asset discreetly to matching investors who are ready to buy.
5. Document the best price: Obtain offers in structured form and make them comparable.
6. Obtain consent: Involve the creditors’ committee or the creditors’ meeting under section 160 InsO.
7. Notarisation and release of encumbrances: Purchase contract before the notary, cancellation consents, distribution of the purchase price.

Best price and liability: why the market process protects

The administrator is liable for realising assets properly and preserving value. Selling an asset visibly below value risks liability and disputes with the creditors. The most effective protection is a comprehensible market process: anyone who can demonstrate that the asset was offered to a broad, matching circle of buyers and that the best achievable price was realised stands on safe ground in any later review. A structured, documented sale is therefore not only a question of proceeds but also one of liability.

The real bottleneck: the buyers

The theory of realisation by private sale is uncontested – in practice a good outcome often fails on access to buyers who actually acquire assets from insolvency proceedings: quickly, with experience in special situations and without drawn-out financing wobbles. This is exactly where an investor network comes in. STRATON matches the asset confidentially against current acquisition profiles of vetted investors – by region, asset class and volume – and thus delivers a documented market overview within a few days instead of a slow case-by-case search. How this matching works is shown under Process; why the discreet route is superior to the public one is explained in Selling property off-market.

Frequently asked questions about realisation in insolvency

Can the administrator sell privately without the consent of the mortgage creditors?

Free of encumbrances only with their cooperation, since they have to release their mortgage rights. The forced auction under section 165 InsO remains open to the administrator as an alternative and acts in negotiations as leverage towards a consensual private solution.

Is a private sale always the better choice?

Usually yes, because it allows proceeds closer to market and more control. There are constellations – for example where parties block the process or the legal position is unclear – in which the forced auction is the cleaner route. The decision is made case by case.

How can an asset with tenants be realised?

Under the principle “sale does not break lease”, let assets pass to the buyer with the existing tenancies in place. For investors this is often even attractive – the income runs from day one.

How quickly can a private sale be completed?

With documents prepared and targeted buyer contact, often considerably faster than a forced auction, which is tied to court dates. The bottleneck is rarely the notary appointment but finding the right buyer.