The benefits of selling or buying on auction 

The misconceptions that auctions are reserved for distressed properties or that it is a hunting ground for bargains, is steadily being corrected as more and more people opt for the auction floor as opposed to traditional real estate channels. The auction process has seen much success in the property market for many years and selling on auction can realise more for your asset due to its competitive mechanism.   It provides the seller with fair market related prices and creates opportunities for buyers to acquire property at a price they are comfortable with. 

Then and now 

Given the financial climate 10 years back, many property auctions occurred as a result of company closures or liquidations where the creditors, appointed liquidators or trustees preferred to use the auction method to dispose of assets. Banking institutions have for some time been using the auction process to sell property successfully, based on its transparent and arms-length process and have achieved excellent results.  These results are achieved through a larger pool of buyers and investors, with a low cost to creditors.   

Qualified buyers 

Normally, the lack of financing is a common hurdle to selling property out of hand or through a broker where a high percentage of deals may not be approved by finance companies or banks and therefore fail, leaving the seller without a result.   Auctions open up the market for a seller on a cash and voetstoots basis with qualified buyers coming fully prepared to make property investments.  While buyers may still obtain finance to pay for the property, making the purchase is not subject to them obtaining finance.    

Voetstoots applies  

Managing Director of Gillan & Veldhuizen PJ Veldhuizen says that Section 55 of the Consumer Protection Act – Consumer’s Right to Safe, Good Quality Goods - does not apply to goods bought on auction.   “The basic purpose of the voetstoots clause is to protect the seller from any action by the buyer (on discovering any defects neither were not aware of when transacting) to jeopardize the actual sale contract. But it is important to note when the consumer’s rights, provided by Section 55, do not apply to a transaction.” 

The price is right  

The savvy seller or investor knows that the auction route is instrumental in achieving a better price where good demand exists, or producing a result for a seller where no demand exists. In particular, auctions are able to produce a sale where a seller requires urgent disposal while traditional marketing and sale methods have not been able to produce any significant result.  Auctions show a higher confirmed sale rate than that shown by the traditional disposal methods.     

Jonathan Smiedt, CEO of Claremart Auction Group, says that he has seen an ongoing increase in both in the number of properties on auction as well as in the demand for such investment opportunities.   “It is a testament to the strength of the auction mechanism that it can out-perform the traditional market under both good and bad economic circumstances, and most notably has been responsible for the sale of many a property that has been listed too long on the market by estate agents incorrectly pricing sellers’ property at the outset.” 

In short, you have a process that is strictly regulated, transparent, and offers instantaneous results, as well as value for money for the buyer and the seller who retain control, can make informed decisions and have the right to set their price at an auction. 

Lights, camera, auction!

A look at some Interesting amendments to King IV, 2016 In July 1993, retired Supreme Court of South Africa Judge Mervyn E. King was asked by the Institute of Directors in South Africa to chair a committee on corporate governance. The committee’s report, aptly named, was to be the first of its kind in South Africa - an opportunity to educate the newly-democratic South African public on the workings of a free economy. 

Three reports were issued: in 1994 (King I), 2002 (King II), 2009 (King III), and the fourth revision, the King IV Report on Corporate Governance for South Africa 2016, prepared by the Institute of Directors in Southern Africa NPC, the custodians of the King Reports, came into effect on 1 April 2017. 

There are varying opinions on the amendments that were made in King IV at the end of 2016 and their impact on business.  PJ Veldhuizen, CEO of local law firm Gillan & Veldhuizen says, “Arguably, the most important shift in King IV relates to the discretion afforded to companies.” Under King III, companies were able to get around a certain principle if they could explain why they should not be required to adhere thereto. However, King IV assumes that the principles set out have been applied and companies are required to state how this was done, rather than using the ‘explain’ mechanism to avoid adherence.

Companies would have been able to use defences for not complying with King III by, for example, stating that the company was in the process of establishing compliance, or by using justifications based on company maturity or size. However, under King IV, a company would have to conform and explain how compliance is ensured. 

The Deloitte Global Trends in Corporate Governance (2015) identified the governance of Information Technology as an emerging issue in Corporate Governance. Although the Financial Intelligence Centre Act (FICA) has opened the door for better management of information, providing further guidelines to Directors would amplify companies’ understanding.   

Seven years have passed since King III became effective so the old practices are no longer in line with the way that technology is now used.  Gretha Carr, Candidate Attorney at Gillan & Vehldhuizen, adds, “Understandably, the new Corporate Governance guidelines had to consider the development and importance of technology in the modern corporate landscape.”  Principle 12 sets out guidelines, emphasising the need for responsibility and policies to ensure information security and management. 

Another amendment worth noting is that although there is a new emphasis on the roles and responsibilities of stakeholders, it is submitted that other legislation, such as the Companies Act 71 of 2008 and Labour Laws, have already moved South Africa to a stakeholder-inclusive approach. 

As such, it is suggested that the new emphasis on outcomes will result in a shift in how companies approach Corporate Governance. The Code sets out the ultimate desired results, these being Ethical Culture, Good Performance, Effective Control and Legitimacy, and thereafter outlines principles that could assist in their achievement.

By way of example, the desired outcome of Effective Control is supported by, inter alia, the following Principles:

Principle 6: The governing body should serve as the focal point and custodian of corporate governance in the organisation.Principle

7: The governing body should comprise the appropriate balance of knowledge, skills, experience, diversity and independence for it to discharge its governance role and responsibilities objectively effectively.Principle

8: The governing body should ensure that its arrangements for delegation within its own structures promote independent judgement, and assist with balance of power and effective discharge of its duties.

Principle 10: The governing body should ensure that the appointment of, and delegation to, management contribute to role clarity and effective exercise of authority and responsibilities. 

These principles are then, in turn, supported by practices that would ensure compliance with the Code. King IV’s emphasis on consequences and principles seems to conform to the overall effort to make Directors more accountable. 

Whilst mostly voluntary, it does benefit companies to apply King IV as far as possible so as to ensure adherence to international standards and best practices.  Regardless, when it comes to matters of the King (IV), the philosophy of the code remains the same, that of leadership, sustainability and good corporate citizenship.