Who is allowed to bid for a legal entity in an electronic auction?
Author of the article: Mgr. Filip Ondřej, ARROWS advokátní kancelář (office@arws.cz, +420 245 007 740)
Electronic auctions are becoming an increasingly common way to acquire real estate or other valuable assets. However, if you are bidding on behalf of a company, you must follow strict rules. The Supreme Court of the Czech Republic (Case No. 20 Cdo 821/2024) has now confirmed that the person authorised to bid must be clearly identified in advance and his or her authorisation officially certified. What mistakes occur in practice and how to avoid them?
Strict rules for auctioneers - what does the law say?
Section 336h(3) of the Code of Civil Procedure (CCP) provides that if a legal entity participates in an electronic auction, only an authorised person may make submissions (bids).
An authorised person under the CCC is:
- a person pursuant to §§ 21, 21a and 21b of the Civil Procedure Code, e.g. a member of the statutory body (managing director of a limited liability company, etc.),
- a natural person with officially certified power of attorney.
The identity of the auctioneer must be verified in advance. This can be done in several ways according to the Decree of the Ministry of Justice No. 418/2001 Coll., on procedures for the performance of enforcement and other activities:
- before the bailiff or his employee upon proof of identity with a valid official identity card,
- an officially certified signature,
- a recognised electronic signature, or
- through a qualified electronic identification system pursuant to the Electronic Identification Act.
In practice, this means that if a company wants a member of the statutory body or an employee authorised by the statutory body to bid on its behalf, for example, this must be clearly stated in the bidding application and the identity of this person must be verified in one of the above ways. This person may then bid on behalf of the legal entity.
The view of the Supreme Court
In a particular case, the Supreme Court dealt with a situation where a public limited company submitted an application for an electronic auction. A member of the board of directors, whose authorisation had been duly certified, was to bid on its behalf. However, in reality, the bids were made by another person whose identity was not documented in advance.
The bailiff subsequently refused to accept the auction bids as valid, which led to a dispute. The Supreme Court eventually confirmed that only the person expressly named in the application form, whose authorisation had been verified, could conduct the auction. Any attempt to circumvent this rule - for example, by having another member of the company's management make the bids - is not permissible.
What can I take away from this? Avoid mistakes in the auction
- Those who are not on the bidding list cannot bid - the argument that another member of the statutory body, who alone can act for the legal entity, is bidding does not hold water. The person who will actually make the bids must comply with the formal requirements set out above for identifying and verifying the identity of the relevant person.
- A power of attorney is not sufficient if it is not officially certified - the signature must be authenticated. If it is necessary to present the power of attorney in electronic form, the document can be converted into electronic form.
- Providing an e-mail address is not sufficient - although the person who will be submitting the bid for the company (provided that he/she is authorised to do so, see above) will provide the e-mail address of the person who is to make the bids as part of the authentication process, this is insufficient and does not meet the above requirements.
Take expert advice
Do you want to make sure that your participation in the electronic auction goes smoothly? Contact us and we will ensure that your application and bidder authorisations are in perfect order. Don't wait until it's too late - an incorrect submission could cost you a bargain.