New legal rules address auction-related pressing issues

Like any technologically dynamic society, the use of electronic means in various aspects of life has turned out to be a fact of life. Recently, there has been a growing clamour by the public to introduce the use of electronic auction (e-auction) of properties that are often sold to recover payments from the defaulting borrowers or by judicially-ordered decisions.

This has mainly been due to prevalent side-deals or syndicate that happened oftentimes by property-blockers and as a consequence many problems would crop up, such as devaluation of property, implied intimidation on prospective bidders, frivolous legal actions challenging auctions to name but a few.

 

Owing to these glaring problems, most recently, the Ministry of Justice [MINIJUST] adopted relevant ministerial orders addressing these issues. Among others is the Ministerial Order No. 05/MOJ/AG/20 of 12/05/2020 relating to the electronic execution of enforcement orders, which determines the organisation, management and the use of electronic system of execution of enforcement orders. It equally determines the procedure used in case the electronic system fails to operate. This electronic system of execution of enforcement orders is organised in such a way that the whole process related to execution of a relevant order is done electronically.

 

During the auction process, as set forth in Article 5 of the foregoing Order, “bidders offer prices through the electronic system of execution of enforcement orders. Offered prices are confidentially kept in the electronic system of execution of enforcement orders. The prices are disclosed through the electronic system of execution of enforcement orders six (6) hours before the hour declared in the notice of auction and also submitted by email to both the bailiff and each bidder”.

 

The most interesting of this, bidders would not know others bidders as the process is done electronically. Bidders would only be disclosed on the auction day.

According to Article 6 of the same Order, whoever is interested to bid for the property worth, or more than 5,000,000 Rwandan Francs is required to pay a refundable bid security of five percent (5%) of the advertised property. Unlike the past practice an interested bidder wasn’t required to provide a bid security.

Previously, during the auction day blockers would involve in the process covertly in order to devalue the property and at times cause a kind of chaos or intimidation to prospective bidders in favour of a certain bidder. These covert operations were common and would go unchecked due to lack of tangible evidence. In fact, this was the most glaring example of this problem, as controlling it was absolutely uneasy.

Under Article 7 of the aforesaid Order, when the auction ends, the bid security furnished is restituted to the bidder in three working days from the time of the bidder’s demand. For the successful bidder is required to pay in three days, but the pay can be deducted from his bid security. Should the successful bidder fails to pay in three days the bid security is taken to the government coffers.

As is commonly said that the internet [electronic system] is not a panacea, in case the electronic system is inoperative at the time of opening of the auction and the prices have already been disclosed, the bailiff (auctioneer) proceeds with the formalities of the auction with the prices disclosed. This is recorded in the written statement to be posted on the electronic system of execution of enforcement orders when it restarts operating.

However, if on the time of opening of the auction the prices are not yet disclosed through the electronic system of execution of enforcement orders, the auction is adjourned and the prices submitted become invalid.

To empathize, the designed e-auction will apply to both judicially-ordered decisions and mortgaged properties (registered with the Office of Registrar General). Given the introduction of the new Ministerial Order, it’s more than likely that such side-deals would not succeed again.

Indeed, e-auction is designed to bring fairness and transparency in transactions concerning properties, which are sold out of a judicially-ordered decision or by request of banks to recover their money.

Electronic auction is a welcome development as it will eliminate any chances of side-deals or backdoor deals commonly done by undisclosed dealers in connivance with the property dealers. This time these covert deals will significantly be under control. For example, mortgaged properties will be safely auctioned and banks would recover their money and similarly the remaining payment to the borrower (if any).

In addition to the earlier Ministerial Order, there was a revision of the Instructions of the Registrar General n° 001/2020/ORG of 12/05/2020 regulating modalities of management, lease, auction and acquisition of mortgage, which have a couple of changes, among others, Article 2 where the Registrar General shall be appointing an auctioneer/receiver of a mortgaged property from only the roll of professional bailiffs. Here, practicing lawyers are excluded from exercising auction unlike in the past.

Another interesting development is seen in Article 3 of the Instructions where an auctioneer is solely liable in any event the auctioneer involves in illegal acts, or by omission due to negligence, or overstepped their authority. This provision significantly minimizes the possible liability of the Office of Registrar General.

The writer is a law expert.

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