Creditors are asked from time to time to complete a proof of
debt (POD) in the event of liquidation or company administration of
a corporate customer. So, while completing a POD is usually
straightforward, what is the position of a secured creditor in
completing it? When can completion of a POD and voting amount to
surrender of your status as a secured creditor?
The right to vote
A creditor has a right to vote in relation to its corporate
customer who has entered into liquidation or company administration
The creditor's debt has been admitted in whole or in
The creditor has lodged particulars of its debt or, if
required, a POD with the chairperson of the meeting.
Voting by a secured creditor
A secured creditor may complete a POD in order to vote. However,
they would do so for the whole claim or debt only if they wish to
surrender their claim to their security. If a creditor doesn't
want to surrender their security or be thought to have surrendered
it, then they should make this clear in the way they complete the
What does the Corporations Regulations 2001 say?
The 'Corporations Regulations 2001' (the Regulations)
deals with voting by secured creditors in a liquidation - setting
out what details of the security that a secured creditor should
provide unless they surrender their security. These details include
the date the security was given, what the security is and the
estimate of the security's value. This may be easy enough when
the security is held over land but becomes more challenging when
the security is held over personal property such as goods sold. The
creditor is entitled to vote for the difference between the value
of the security and the debt they are owed. The estimate should be
arrived at in good faith and as accurately as is possible.
The POD form appears as Form 535 in Schedule 2 of the
Regulations, and contains an opportunity to provide details of
security held and the estimated value. If a creditor has seized the
secured property and disposed of it, they can complete the POD for
When does a failure to give details of your security not
There appear to be two scenarios when adherence isn't
required or doesn't matter. These are:
The Regulations make it clear that it doesn't apply to a
meeting of creditors of a company under the company administration
or a meeting held under a Deed of Company Arrangement.
When a vote at a meeting of creditors in a liquidation is
conducted via a show of hands or is taken on the voices rather than
by a poll. This is because with a show of hands or vote on the
voices, creditors are voting just as a creditor and not in
accordance with or relying on the value of their debt.
Important lessons for secured creditors to heed
In the matter of Cosmopolitan Constructions Pty Ltd (in
liquidation)  NSWSC 780 the secured creditor held
security in the form of an equitable charge protected by a caveat
over real property. The creditor lodged a POD giving details of the
security but estimating its value as nil. The creditor voted in a
poll at a meeting of creditors for the full amount of its debt and
its debt was admitted for the full amount. It was held by the Court
that by the creditor submitting the POD for the full amount and
voting in a poll for the full amount, it had elected to surrender
its security. The valuing of the security as nil was taken as a
surrender of the security.
Tips to avoid accidental surrender
Consider why you want to vote at a meeting
Ask yourself what will you gain in voting
If it appears that there will be no dividend to unsecured
creditors or that voting is on a trivial issue, you can simply
choose not to vote at all. Similarly, if you think there will be a
surplus after you repossess and sell your security, there may be no
point in completing the POD and voting.
Completing a POD requires thought and care and is not merely an
administrative task so think carefully before you complete one and
vote at a meeting of creditors in a liquidation.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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A recent NSW decision has implications for liquidators of trustee companies dealing with trust funds and priority debts.
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