Secured Creditor nearly loses security by lodging Proof of Debt

Secured creditors need to be careful in lodging a Proof of Debt which fails to value their security interest, otherwise they may be inadvertently surrendering the security interest.

The Supreme Court of New South Wales recently considered whether a secured creditor had surrendered the security after they lodged a proof of debt for the full value of the debt, without deduction for the security interest, and were unaware that they were surrendering the security interest by doing so.

In the past the courts have accepted that inadvertence of this nature is sufficient to mean that the secured creditor does not surrender its security, but nonetheless exposes secured creditors to unnecessary risk.

The Court found the error occurred through inadvertence and declared the creditor had not surrendered the security interest.

For more information, see the decision.