top of page

Creditors - Is Your Security At Risk?

Secured Creditors, looking to bankrupt a debtor need to be careful not to compromise or worse, inadvertently surrender their security.

Section 44 of the Bankrupt act 1966 ("Act") provides strict guidelines to be adhered to by Secured Creditors when completing a Creditors Petition.

When Secured Creditors Can Apply to Bankrupt a Debtor:

Unlike in a Corporate Insolvency scenario, Secured Creditors can only petition for an individual debtor's bankruptcy in the following situations:

  • Where they value their security and the "unsecured" portion of their claim is greater than $5, 000 bankruptcy threshold; or

  • For the full amount outstanding where they agree to surrender their security.

Repercussions of not Applying Properly:

It is important to note that if a Secured Creditor files an application under the second alternative (i.e. as an unsecured creditor who agrees to surrender their security), upon request from the trustee in bankruptcy within three months of the making of the sequestration order, the creditor must surrender their security to the trustee for the benefit of the creditors generally. To not comply with this request would result in the creditor being in contempt of Court.

The incorrect omission or estimation of a creditor's security, although not fatal to the Creditors Petition, may be a discretionary factor, considered by the Court, in the event of an annulment application.

Who is a Secured Creditor:

A Secured Creditor for the purposes of the Act is listed a being one holding a mortgage, charge of lien on property of the debtor (which includes property owned by the debtor in their capacity as trustee).

The "security" need not have been registered for the creditor to be deemed to be secured, no is there, in some cases, any need for the security to actually have been given by the debtor. A creditor may also be secured due to a statue or other legislative instrument requiring the creation of a "lien or charge" where an amount becomes payable by a debtor.

How to Value Security:

Sometimes it can be difficult for creditors to value their security. In these instances, an estimate can be sufficient for Creditors Petition purposes, however Creditors must be diligent in formulating any such estimate which shouldn't be arbitrary or capricious.

Further, a false, intentionally illusory or excessively low estimate can grounds for dismissing the petition.

The estimate can be revised for Proof of Debt Purposes.

If you have queries with respect to Creditors Petitions or Bankruptcy in general, please do not hesitate to contact me on

This article is intended to provided general information only in summary format on relevant issues. It does not constitute legal or financial advice, and should not be relied on as such.


bottom of page