However,
an important function of Form 535 is to determine the relative voting rights of
creditors.
Section
5.6.24 of the Corporations Regulations 2001 states:
(1)
For the purposes of voting, a secured creditor must state in the
creditor’s proof of debt or claim:
(a) the particulars of his or her security; and
(b) the date when it was given; and
(c) the creditor’s estimate of the value of the
security;
unless he or she surrenders the security.
In other words, any failure by the creditor to provide
details of their security may be interpreted as a surrender of their rights to
that security.
Under Corporations law, creditors are only allowed to vote
at creditors’ meetings to the extent that they are unsecured.
For example, a PMSI registered creditor with a retention of
title over goods they have supplied may be owed a total of $20,000 but,
following a stock check at the buyer’s premises, it is found that only $8,000
of that creditor’s goods can be identified.
Because the creditor’s security is limited to the availability of the
goods they supplied, they are only a secured creditor for $8,000 of the amount
owing and an unsecured creditor for the $12,000 balance.
Our PMSI holder can therefore vote with $12,000 of voting
rights at creditors’ meetings while still retaining their secured creditor
status over the $8,000 for which stock can be identified.
This is in line with the second part of 5.6.24 which states:
(2) A creditor is entitled to
vote only in respect of the balance, if any, due to him or her after deducting
the value of his or her security as estimated by him or her in accordance with
regulation 5.6.41.
(note: regulation 5.6.41 reflects the information required at part 2 of
Form 535)
However, if there has been any vagueness or lack of accuracy
or clarity in completing the details and values of any security being asserted at
part 2 of Form 535, any votes cast by the creditor will be interpreted as an
intention by them to be treated as an unsecured creditor for up to the full amount of their debt.
The third part of 5.6.24 refers:
(3) If a secured creditor votes
in respect of his or her whole debt or claim, the creditor must be taken to
have surrendered his or her security unless the Court on application is
satisfied that the omission to value the security has arisen from inadvertence.
Liquidators are frequently chasing creditors for completion
and return of Proof of Debt forms before formal stock takes have been
completed, encouraging ROT holders to be substantially less than specific on
their Form 535. Should that ROT holder
then turn up to vote at a meeting of creditors – whether over the creation of a
committee of inspection or to rubber stamp a liquidator’s remuneration – they may
suddenly find themselves stripped of all their security rights.
There is legal precedent (Young v ACN 081 162 512 [2005] NSW Supreme Court) for a creditors’
vote on a matter as mundane as the adjournment of a meeting being deemed
sufficient to strip an unpaid creditor of their secured creditor status.
It is quite sobering to imagine a supplier, upgrading their
terms & conditions to ensure the effectiveness of their Retention of Title
clause, registering that ROT on the PPSR in order to maximise its priority,
maintaining detailed records of orders, deliveries and payments only to find
that all their efforts to protect themselves have been undone by their
participation in a vote to approve the adjournment of a creditors’ meeting.
Is there a lesson to all this?
Simply that creditors should be aware of what they are
actually doing when they complete a Form 535 Proof of Debt form and that,
unless they have specifically identified the extent to which they are
secured/unsecured on that form, any subsequent vote cast by them at a creditors’
meeting could result in them losing any security rights to which they had been
entitled.
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