Public auction of company shares as a legally compliant endgame procedure for the sale of shares

Public auction of company shares as a legally compliant endgame procedure for collateral enforcement: speed, finality and economic efficiency

Deal Certainty — Price Discovery — Time-to-Close

Classification and objectives

In distressed and enforcement constellations, creditors, financiers and their legal advisors optimize speed, finality and economic efficiency. The public auction of company shares is the legally compliant endgame procedure for collateral enforcement, provided that a notarized pledge agreement is in place for GmbH shares. The acceptance of the bid as a sovereign act (Section 156 BGB) establishes the conclusion of the contract with final effect and sets the clear time of conclusion; renegotiation is systematically excluded. Experience has shown that the time to legally compliant award (time-to-close) is four to six weeks. The process architecture creates transparent costs, audit-proof documentation and reliable price discovery in open, non-discriminatory competition.

Legal framework and responsibility

In terms of legal doctrine, the mechanism is based on Section 156 of the German Civil Code (BGB); from January 1, 2025, the conduct of public auctions is expressly regulated in Section 383 of the new version of the BGB. The responsibility of the generally publicly appointed and sworn auctioneer is enshrined in law in the first place; in practice, the knockdown in this context is understood as a legally formative act of sovereignty from entrusted activity. Digital formats are permitted; virtual or hybrid appointments are procedurally safeguarded.

Limitation of liability and purchaser protection

The statutory limitation of liability in Section 445 BGB applies to public auctions. The exclusion of liability has also been confirmed by the highest court in voluntary public auctions (“Hamburger Stadtsiegel” judgment, BGH 05.10.1989, Ref. IX ZR 265/88). Publication in accordance with Section 1237 BGB guarantees the scope and legitimacy of the market opening, while confidentiality is maintained via an NDA-protected data room. KYC/AML gates, security deposits and binding auction conditions discipline the process and increase the ability to close deals and price robustness.

Differentiation from insolvency law

To distinguish this from insolvency law, the Federal Court of Justice clarified in its ruling of October 27, 2022 (IX ZR 145/21) that the insolvency administrator’s right of realization pursuant to Section 166 InsO does not extend to other rights; an analogy was rejected. The realization of pledged company shares and other rights is therefore exclusively subject to the right of lien and auction. This increases the legal certainty of the choice of structure and protects the finality of the award.

Gatekeeper, negative pledge and corporate law requirements

Gatekeeper requirements such as transfer restrictions, consents, pre-emption and CoC clauses must be fulfilled in advance in the notarized pledge agreement as part of this auction process; the execution of the public auction is not affected by this. The finality of the acceptance of the bid is undisputed: Closing takes place quickly, the implementation in rem or in the register can vary depending on legal or contractual requirements. In the practical view advocated here, the transfer agreement is drafted after the knockdown in such a way that the purchaser can initiate the implementation in the register himself; the execution of the public auction is independent of this. In addition, reference should be made to possible negative pledge clauses in loan or syndicate agreements. These only have an effect under the law of obligations between the borrower and the financiers, but must be resolved in advance or taken into account by means of consent clauses in the notarized pledge agreement. They are not relevant for the execution of the public auction itself, as the knockdown is carried out as a sovereign act.

Tax valuation

For tax purposes, the hammer price serves as the fair market value, provided that the procedure was carried out properly and the sale is in the ordinary course of business. According to BFH case law on the derivation of the fair market value from recent sales between third parties and the administrative opinion of the ErbStR (R B 11.2 in conjunction with R B 9.1), this value is generally to be adopted; in practice, this is understood as a binding effect for the tax authorities as long as there are no special circumstances in the individual case to the contrary. This means that the valuation is documented in a legally secure manner and can be used for subsequent decisions by the authorities.

Myths vs. facts

Myth 1: Damage to reputation through public auction
Fact: Reason is almost always known in the market anyway; publication according to § 1237 BGB opens the market, but debtor is not named, VDR protects confidential information → competition without leaks, robust price discovery.

Myth 2: Auctions are more expensive
Fact: Costs can be calculated from the outset; buyer pays premium; no retainer or success fees, no “open-ended” fees → lower cost-to-execute.

Myth 3: More bidders reduce the probability of closing
Fact: Qualified bidder field (KYC/AML, collateral, binding auction conditions) increases price dynamics and closing ability → no deal drift.

Myth 4: M&A offers more control
Fact: Complexity only creates illusory control. Warranty catalogs, MACs, earn-outs prolong processes. In the public auction, § 156 BGB sets the final, non-negotiable decision point.

Myth 5: M&A achieves structurally higher prices
Fact: Public auctioneers have core competence in acquisition and reach; in net of costs & risks the public auction is at least equivalent, in distressed/pledge scenarios regularly superior.

Myth 6: The public auction is like a forced sale in an emergency.

Fact: Instead of an emergency measure, the public auction is a proven, economically sound auction design, the efficiency of which has been proven by game theory and highlighted by the 2020 Nobel Prize (Milgrom/Wilson).

Conclusion:
The public auction ensures legally compliant finality without execution risk, with transparent pricing and shorter settlement times compared to bilateral M&A procedures. Standardized processes reduce transaction costs and ensure efficient value allocation.

About the authors

Eberhard Ostermayer & Dr. Dagmar Gold — generally publicly appointed and sworn auctioneers, Deutsche Pfandverwertung

Disclaimer
This article contains general market and practical information and does not replace individual legal or tax advice. An asset and procedure-specific examination is required.

About Deutsche Pfandverwertung

We are publicly appointed, sworn auctioneers (auctioneers) with many years of experience in the realization of legal and contractual pledges of rights in legally compliant online auctions with live stream.

We act on the basis of a sovereignly legitimized mandate. Our award is not merely the conclusion of a contract, but a legally binding act of sovereignty — final, transparent and without renegotiation. Unlike traditional M&A advisors, we are not an intermediary, but an organ of the administration of justice. We create the opportunity for creditors and investors to realize company shares, rights and assets in a legally compliant, fast and final manner.

Do you have a specific case? Then get in touch with us: TO THE CONTACT FORM.

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