Obtain advice before you lodge a proof of debt or vote in a liquidation

Secured creditors should remember that submitting a proof of debt and voting in a liquidation may result in the loss of their security if they get it wrong.

The Supreme Court of New South Wales has delivered a timely reminder to secured creditors of a company in liquidation, where the secured creditor lost its security because it submitted a proof of debt for the full amount of its debt and voted on a poll at a creditor’s meeting for its full debt.

Liquidators are commonly appointed to a company where, prior to liquidation the company was a trustee of a trust. Often when the liquidators are appointed, the company has ceased to be the trustee and a replacement trustee has not been appointed.

In these circumstances, the company in liquidation is a bare trustee in relation to the trust assets and the liquidator will assume this role until a replacement trustee is appointed. Often a replacement trustee is not appointed.

Does the liquidator as bare trustee have a power to sell trust assets?

Secured creditors should not allow a liquidator to sell a secured asset without first:

The Court of Appeal gave judgment today (15 November 2013) in favour of licensed insolvency practitioner Andrew Hosking (D), unanimously upholding a strike out judgment of Peter Smith J made on 22 February 2013. 

Stephen Hunt, liquidator of Ovenden Colbert Printers Limited (“OCP”), had sued D and 8 other defendants.  His claim against D was brought pursuant to sections 238 and 241 Insolvency Act 1986.  He alleged that D had received or benefited from payments made by OCP which constituted transactions at an undervalue.