Rights of Secured Creditor in Australia and New Zealand
Generally, secured creditors are granted similar priority rights over other creditors under the 1993 Companies Act of New Zealand and the 2001 Corporations Act of Australia. However, such rights do differ in at least one significant way in each country.
Under both legislative schemes, secured creditors are granted a priority of recovery up to the value of their security interest from the liquidated assets of the company (See Companies Act, 1003, Part 16.305(3)(a); Corporations Act, 2001, 5.3A). Also, in both countries, debts in excess of the secured creditorsÆ security interests enjoy no greater recovery priority than the recovery interests of unsecured creditors. Also notable is the fact that secured creditorsÆ interests in both countries supercede employee entitlements, a matter currently under substantial debate in both countries (See, for example, Australian Council of Trade Unions, 2003).
The Insolvency Law Review maintains that the legislative schemes of both countries are based on the belief that secured creditorsÆ contractual rights should be treated as paramount. In Australia, in particular, the grant of such control is written into section 436C(1) of the Corporations Act, which provides that a secured creditor whose interest makes up the whole or ôsubstantially the wholeö of a companyÆs property may appoint a receiver for the ôif the charge has become, and is still, enforceableö (See also Corporations Act, 2001, sec. 441). The Commonwealth [of Australia] Treasury points out that this security interest becomes a mortgage debenture or fixed and floating charge which attaches to all of the companyÆs assets. This is significant because such a debenture or charge applies to all of the mortgagorÆs assets, thereby protecting the secured creditor even should the receiver sell the companyÆs assets or handle them in such a manner that they devalue (Treasu...