secured creditor and they won’t participate in the liquidation process until they have realised their security. Instead a secured creditor will reply on their security for the repayment of their debt and will sell the asset to recoup their debt. If there is any shortfall after the sale of the asset, they can prove in the liquidation for the shortfall amount.
A secured creditor can choose to surrender their security and prove in the liquidation for their entire claim, but this is most unusual.
A secured creditor needs to be very careful when they vote a meeting of creditors in a liquidation. For the purposes of voting, a secured creditor should only claim and vote for the anticipated shortfall in their security. In their proof of debt they must disclose:

1. the particulars of their security;
2. the date when it was given; and
3. estimate the value of the security and any anticipated shortfall

If the secured creditor doesn’t follow these strict rules as set out in Regulation 5.6.24 of the Corporations Act, then it must be taken that the secured creditors has surrendered their security (unless a court rules otherwise).
If you would like to understand the effect of liquidation on secured creditors we would always recommend that you obtain independent legal advice. We can make a referral to an independent legal adviser if that becomes necessary.
The information provided in this site is general in nature and should not be relied upon for your specific circumstance. Call us on 1800 981 070 for a free initial consultation to discuss your specific issues.