Auctioneers Must Disclose Buyer’s Premium in Bankruptcy

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By Diane Davis

A premium that auctioneers charge buyers in a Chapter 7 liquidation must be disclosed to a court at the time their services are sought, the U.S. Bankruptcy Court for the Central District of Illinois held.

Because it’s property of the estate, a bankruptcy court must approve the buyer’s premium, which has become a “common tool” used by auctioneers, Judge Mary P. Gorman wrote Jan. 3.

The premium is a fee calculated as a percentage of a final sales price and paid to the auctioneer in addition to the commission charged to the seller.

The buyer’s fee is subject to debate, and the question of whether it should be allowed in bankruptcy sales remains “open,” the court said.

In two consolidated cases, the Chapter 7 trustee filed an application to pay the auctioneer to sell certain motor vehicles and proposed paying a commission and fee for bringing the vehicle to auction.

In one case, the trustee said a buyer’s premium would be charged. But in the other, the trustee said he was informed of the charge at a later time.

Because one application referenced undisclosed compensation, and both failed to fully disclose all compensation paid or promised to the auctioneer, the court denied each.

Employment and compensation of professionals in bankruptcy is governed by Bankruptcy Code Sections 327 and 330, and Federal Rules of Bankruptcy Procedure 2014 and 2016.

They require full and continuing disclosure of any connections to parties in interest and compensation arrangements from any and all sources, the court said.

Trustees in this district have routinely filed applications with buyer’s premiums without concern about the impact on net sales proceeds, the court said.

But "[c]ommon sense suggests that savvy buyers will figure the buyer’s premium into their bids and experienced sellers will recognize that their net revenues will be impacted by the charge,” the court said.

Whether Chapter 7 trustees should seek approval for auctioneers to make these charges is open and subject to a case-by-case determination, the court said.

John S. Narmont, and Teresa I. Pisula, Springfield, Ill., represented THR & Assocs., Inc.; Andrew S. Erickson, Richardson & Erickson, Decatur, Ill., represented Trustee Jeffrey D. Richardson; U.S. Trustee Timothy E. Ruppel, Region 10, Peoria, Ill., represented himself; Roger L. Prillaman, Prillaman & Moore, Ltd., Urbana, Ill., represented Aldo and Julie Ruffolo.

The case is In re THR & Assocs. , 2018 BL 1901, Bankr. C.D. Ill., Nos. 12-72022, 15-90801 Chapter 7, 1/3/18 .

To contact the reporter on this story: Diane Davis in Washington at ddavis@bloomberglaw.com

To contact the editor responsible for this story: Jay Horowitz at jhorowitz@bloomberglaw.com

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