Secured and unsecured creditors alike are often advised to lodge
a proof of debt ('PoD') as soon as
possible after a debtor company goes into liquidation. Secured
creditors often presume that they are able to vote at any
creditors' meeting without their rights being affected. In both
of these instances however, a secured creditor runs the risk of
surrendering their security interest. Secured creditors should
therefore be careful and seek legal advice before lodging a PoD and
voting at creditors meetings.
Points secured creditors should keep in mind when
lodging a PoD and voting
Generally, a secured creditor should not lodge a PoD in
relation to that part of the debt which would be satisfied by the
estimated value of the security (ie the secured part of the
A secured creditor is only entitled to vote by poll in relation
to that part of the debt which would not be satisfied by the
estimated value of the security (ie the unsecured part of the
If a secured creditor does attempt to prove a secured debt or
vote at a creditors' meeting by poll in relation to the secured
part of the debt, then the secured creditor might inadvertently
surrender their security.
The secured creditor will not however surrender their security
if they lodge a PoD and vote at any creditors meetings in relation
to only that part of the debt which would not be satisfied by the
estimated value of their security (ie the unsecured part of the
Listing a security interest as having 'NIL'
In the NSW Supreme Court case of Cosmopolitan Constructions
Pty Ltd (in liquidation)  NSWSC 780, a secured creditor
held a caveat over a property which was owned by the company that
went into liquidation.
The secured creditor lodged a PoD in which it claimed
the full amount of its debt. The secured creditor
stated in the PoD that the estimated value of the security was
'NIL'. At the creditors meeting the secured creditor's
debt was admitted in full.
The Court found that as a consequence of the secured creditor
attributing a 'NIL' value to the security and having the
debt admitted in full, the secured creditor had forfeited its
Voting by poll
In the case of Young v ACN 081 162 512  NSWSC
139, a secured creditor voted to adjourn a creditors meeting. The
secured creditor had lodged a PoD in which it stated that the value
of the security was "not known". The Court held that by
voting by poll at the creditors meeting and not providing an
estimate of the value of the security at the meeting, the secured
creditor had surrendered its security.
A secured creditor will not be deemed to have surrendered its
security by voting at a creditors meeting if the vote of creditors
was conducted by a show of hands rather than by a poll. That is
because in those circumstances, the secured creditor would not be
voting in accordance with the value of their debt.
How a secured creditor can avoid surrendering their
A secured creditor should:
seek appropriate legal advice as to:
whether they should submit a PoD;
what value should be attributed to the security interest on the
whether they should vote at creditors meetings.
If the secured creditor does lodge a PoD in relation to the
difference between the estimated value of their security and the
amount of the debt, they should ensure that the PoD clearly
indicates that the security is not surrendered. It is best practice
to include an express statement on the PoD to that effect.
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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