Case: Sargent v ASL Developments Limited [1974] HCA 40 ; (1974) 131 CLR 634
Outcome: distinguished
On 16 May, during the course of oral argument, counsel appearing for the liquidator of Kelso raised the possibility that the actions of Provident may be seen to amount to an unequivocal election to surrender its security pursuant to s 554E of the Corporations Act 2001 (Cth) and in accordance with the principles stated by the High Court in Sargent v ASL Developments Limited [1974] HCA 40 ; (1974) 131 CLR 634. 4 I will set out the relevant legislative provisions which are as follows: Section 554E Proof of debt by secured creditor (1) In the winding up of an insolvent company, a secured creditor is not entitled to prove the whole or a part of the secured debt otherwise than in accordance with this section and with any other provisions of this Act or the regulations that are applicable to proving the debt. (2) The creditor's proof of debt must be in writing. (3) If the creditor surrenders the security to the liquidator for the benefit of creditors generally, the creditor may prove for the whole of the amount of the secured debt. (4) If the creditor realises the security, the creditor may prove for any balance due after deducting the net amount realised, unless the liquidator is not satisfied that the realisation has been effected in good faith and in a proper manner. (5) If the creditor has not realised or surrendered the security, the creditor may: (a) estimate its value; and (b) prove for the balance due after deducting the value so estimated. (6) If subsection (5) applies, the proof of debt must include particulars of the security and the creditor's estimate of its value. Regulation 5.6.24 Votes of secured creditors (1) For the purposes of voting, a secured creditor must state in the creditor's proof of debt or claim: (a) the particulars of his or her security; and (b) the date when it was given; and (c) the creditor's estimate of the value of the security; unless he or she surrenders the security. (2) A creditor is entitled to vote only in respect of the balance, if any, due to him or her after deducting the value of his or her security as estimated by him or her in accordance with regulation 5.6.41. (3) If a secured creditor votes in respect of his or her whole debt or claim, the creditor must be taken to have surrendered his or her security unless the Court on application is satisfied that the omission to value the security has arisen from inadvertence. (4) This regulation does not apply to: (a) a meeting of creditors convened under Part 5.3A of the Act; or (b) a meeting held under a deed of company arrangement. 5 The facts may be stated briefly. Provident entered into a deed of charge with Kelso on 2 August 2001. The charge is a fixed and floating charge and was registered on 9 August 2001. Kelso owned a factory and land situated at Wentworthville. That property was subject to Provident's charge. 22 Doyle CJ in Health &amp; Life Care went on at 162 to explain the relationship between reg 5.6.24 and the provisions of s 554E of the Act. It is evident that even if the provisions of the regulations are not applicable, there may nonetheless amount to conduct on the part of a secured creditor which would constitute an election within the principles stated in Sargent v ASL . 24 Dutney J referred to the well-know statement of principle of Stephen J in Sargent v ASL where Stephen J observed that: The words or conduct ordinarily required to constitute an election must be unequivocal in the sense that [the words or conduct are] consistent only with the exercise of one of the two sets of rights and inconsistent with the exercise of the other. Stephen JA also observed that there may be less unequivocal conduct which may provide some evidence of an election and that this may be sufficient if it is coupled with actual knowledge of the right of election. 26 The effect of the reasoning in Surfers Paradise Investments seems to be that something more than the mere submission of the proof of debt is required to constitute an election in the sense referred to in Sargent v ASL . In Surfers Paradise Investments the Queensland Court of Appeal was of the view that there was an election because the receipt of the dividend cheque was unequivocal. At that point in time, as Dutney J observed at [37], the respondent was required to make a choice between accepting the cheque or returning it to the liquidator. The assertion of a right to retain the dividend evidenced by banking the cheque and retaining the proceeds was sufficient to constitute unequivocal conduct amounting to an election.