Ministry of Justice of the Republic of Armenia Compulsory Enforcement Service of Judicial Acts The Chief Compulsory Enforcement Officer of Armenia Mihran Poghosyan Legislative grounds and procedure of organizing and holding compulsory electronic auctions in the Republic of Armenia Batumi 2011

Ministry of Justice of the RA Compulsory Enforcement Service of Judicial Acts Chief Compulsory Enforcement Officer of Armenia Mihran Poghosyan In every country especially the auction process is highlighted and emphasised by the legislation, regulating the relations in the stage of compulsory enforcement of judicial acts, as an efficient means of realisation of the debtor’s property. Now the auction process in the Judicial Acts Compulsory Enforcement Service of the Republic of Armenia is conducted exclusively via compulsory electronic system. The valuation of the debtor’s property and realisation thereof under enforcement proceedings are implemented in the Republic of Armenia as laid down in the Law of the RA "On Public Bids" (hereinafter referred to as "the Law") adopted 8 October The current procedure of realisation of the debtor’s property through compulsory electronic auction — as modified on the basis of the corresponding amendments made to the Law of the RA "On Public Bids" on 15 June 2006 — is effective in the Republic of Armenia since 1 October The compulsory electronic auction is described by the mentioned law as bids organised through applying electronic systems via the Compulsory Enforcement Service’s website for auction (hereinafter referred to as "website"), which is organised and conducted by the Compulsory Enforcement Service of the Justice Ministry of the Republic of Armenia in accordance with writs of execution.

Ministry of Justice of the RA Compulsory Enforcement Service of Judicial Acts Chief Compulsory Enforcement Officer of Armenia Mihran Poghosyan The study of the experience of the first years of Service's operation shows that before the investment of the compulsory electronic auction system, some part of the issues the Service faced was connected especially with the low efficiency of conducting auctions. One of the factors resulting in this was most probably connected with the difficulties in advertising the property regularly, providing public at large an access to complete information thereon. In the mentioned period the Service had to undertake measures for presenting the property under auction to citizens on TV and via other mass media two-three times a year, because the Service's "Enforcement Officer's Herald" newspaper did not give the desired result. The availability and operation of the "Online Auction" system, through which the compulsory electronic auction is conducted in the Republic of Armenia, is ensured in banking and state institutions by an independent company (Smart Tech) engaged in development and automation of processes, as well as investment of bank equipments and technical service in various states.

Ministry of Justice of the RA Compulsory Enforcement Service of Judicial Acts Chief Compulsory Enforcement Officer of Armenia Mihran Poghosyan We can say for sure that the "Online Auction" system today involves mechanisms that exclude any interference in the auction process not envisaged by the law by officials or any other persons, as well as ensure the utmost transparency of the process, and by this ensure an opportunity for anyone to follow the process, which inevitably reduces the corruption risks. The compulsory enforcement officer’s decision on conduction of compulsory electronic auction must be sent to the debtor and the claimant at least ten days prior to the publication of the notice. This is a statutory requirement of the Law. The decision presented to the parties of the proceedings as prescribed by law on realisation of attached property through compulsory electronic auctions, includes a note on the website of conduction of the auction, as well as a note on the procedure, laid down by the law, on the change of the price of the lot at the second and any subsequent auction.

Ministry of Justice of the RA Compulsory Enforcement Service of Judicial Acts Chief Compulsory Enforcement Officer of Armenia Mihran Poghosyan Unless specified otherwise by the Law, any piece of personal or real property, including property rights, can become a lot at a compulsory electronic auction in Armenia. Compulsory enforcement officers define the composition and quantity of the property included in the lot subject to sale at compulsory electronic auction by estimating the price of the lot. The valuation of real property, shares (stocks, stakes), cultural values and the property that is more difficult to valuate is conducted by a valuer, appointed by the compulsory enforcement officer. The valuation of real estate is conducted by persons having corresponding licence. The procedure and conditions of selection of those persons are established by the Government of the Republic of Armenia. The starting price of the lot at the forced auction is defined by the law at 75% of the price of the valued lot. The participants of the auction have the opportunity to register themselves through the ArCa system and participate in the auction, excluding any contact with compulsory enforcement officers.

Ministry of Justice of the RA Compulsory Enforcement Service of Judicial Acts Chief Compulsory Enforcement Officer of Armenia Mihran Poghosyan Persons who expressed an interest to participate in the compulsory electronic auction shall — in accordance with the procedure and within terms specified in the website — initially deposit or pay a bid security in the amount of 5% of the starting price of the lot on the bank account of the Service or to the cash-box of the Service, respectively, and register in the System. The procedure for giving a public notice on a compulsory electronic auction and for registration of the participants is defined by the Minister of Justice of the Republic of Armenia. Actually, the legislative requirement that the information on auction participants is not subject to publication can be considered as an essential guarantee for normal realisation of the auction process. The respective hour of the working day following the tenth day after publication in the website of the public notice on the given lot shall be deemed as the closing time (hour) of the compulsory electronic auction of each lot. During the compulsory electronic auction each participant has the right to present a new bid that must exceed the participant’s previous bid at least in the amount of the minimum increment. The amount thereof is clearly defined by the law on the basis of the starting price of the lot. The winner of the compulsory electronic auction is the participant who made the highest bid. The winner is selected through the system.

Ministry of Justice of the RA Compulsory Enforcement Service of Judicial Acts Chief Compulsory Enforcement Officer of Armenia Mihran Poghosyan The bid security of the winning participant, deposited prior to the compulsory electronic auction, is transferred to the account of the Service. The bid securities of other participants are unfrozen or returned, if paid in cash or transferred to the deposit account of the Service, within three banking days. Within three banking days after the end of the auction, the winning participant pays the hammer price of the lot less the bid security: payment is made via transfer to the account or payment to the cash-desk of the Service. If the payment is not made, the bid security of the winning participant is forfeited. Within three days after payment of the hammer price by the winner, the compulsory enforcement officer signs a sale contract with the winner or the representative thereof. If the contract is not signed by the winner within the specified term, the paid amount is returned to the winner, and the bid security is forfeited. The proceeds from sale of the lot is transferred or handed to the claimant, within three days after the signing of the sale contract.

Ministry of Justice of the RA Compulsory Enforcement Service of Judicial Acts Chief Compulsory Enforcement Officer of Armenia Mihran Poghosyan The compulsory electronic auction is considered frustrated, in case: (1) no buyer participated in the auction; (2) the starting price of the lot was not incremented during the auction; (3) the successful participant refused to sign a sales contract or failed to pay the hammer price of the lot in due time. In case of invalidating a compulsory electronic auction, a new compulsory electronic auction is organised as prescribed by law. The Law of the Republic of Armenia "On Public Bids" also regulates the procedure of conducting the second and subsequent compulsory electronic auctions. In particular, on the third working day following each frustrated forced auction, a notice on subsequent auctioning of the lot is posted on the website. If the frustration of the auction is due to the absence of buyers or failure to increment the starting price, the starting price of the lot at the subsequent auction is decreased at ten per cent of the starting price of the lot set at the previous auction. If the frustration of the auction is due to the failure on behalf of the buyer to make the payment or sign the sale contract within the specified terms, the starting price of the lot at the subsequent auction is not decreased.

Ministry of Justice of the RA Compulsory Enforcement Service of Judicial Acts Chief Compulsory Enforcement Officer of Armenia Mihran Poghosyan If the lot is not sold at the second and any subsequent auction, the claimant, within two working days following the end of the auction, has the right to accept the lot against the claim at the starting price of the auction. The state bodies acting on behalf of the Republic of Armenia may accept a lot against a claim only if they are authorised to do that. The list of state bodies authorised to accept property against a claim is defined by the Government of the Republic of Armenia. The claimant may submit to the Service a written request for taking the lot against the claim until the end of the second working day following the day of the frustrated auction. If no such request is submitted or if there are multiple writs of execution for seizure of the property of the same debtor (except for the levy in execution of the state fee), the lot is not handed over to the claimant, and the process of auction continues. The claimant and the compulsory enforcement officer sign a contract on transfer of property. Should the starting price of the lot exceed the amount of debt specified by the judicial act, the claimant, prior to signing the contract, is obliged to pay the difference between the starting price of the lot and the amount of debt, specified by the judicial act, to the debtor. The property (the lot) is handed over to the claimant after compensation of the enforcement costs by the claimant.

Ministry of Justice of the RA Compulsory Enforcement Service of Judicial Acts Chief Compulsory Enforcement Officer of Armenia Mihran Poghosyan If the lot remains unsold after the sixth auction, the compulsory enforcement officer has the right to realise it through direct selling as prescribed by law (except for real property, shares (stocks, stakes) and cultural values). Summarising the afore-written, we can state that the wide and coordinated use of the "Online Auction" system and generally the information technology innovations today gives the Service an opportunity to make the measures aimed at the enforcement of writs of execution issued by courts fast, efficient, economical and, at the same time, reduce the corruption risks. Despite the considerable progress in the sphere, the legislative reforms aimed at the development of the current system still remain agenda issues for the Service, as the strengthening of any system should be observed from the aspect of its prospective development.

Ministry of Justice of the RA Compulsory Enforcement Service of Judicial Acts Chief Compulsory Enforcement Officer of Armenia Mihran Poghosyan THANK YOU FOR YOUR ATTENTION