Recent decision impacts secured creditors

Recent decision impacts secured creditors

A DECISION this month in the Supreme Court of New South Wales has held that a secured creditor who funds its own receiver’s public examinations in order to maximise its own recoveries, may be entitled to a priority dividend under section 564 of the Corporations Act if the company’s liquidator uses the results of the examinations.

In Tolcher v National Bank of Australia, the NAB did not fund the liquidator’s involvement but gave the liquidator a ‘free ride’.

It paid for the examinations but allowed the liquidator to supply NAB’s counsel with questions to ask and gave him access to transcript and documents produced in the examinations.

Only the liquidator could use most of the information elicited, which allowed settlement of preference and insolvent trading claims.

The court had earlier held that NAB had no secured claims to the proceeds.

Nonetheless, NAB was awarded a sizeable priority dividend.

The court also held that section 564 could not be used to reward a creditor who funded the company’s administrator, even though this would improve returns to creditors once the company was liquidated.

The section only applies when a creditor takes a financial risk in a winding up.

David Thompson, senior associate

9288 6883

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