Receiving notification that one of your debtors has been placed into external administration can be a difficult time for a business. 

A recurring question that arises from creditors in an external administration is how they can ensure their claim has been correctly recorded by the external administrator.

Ordinarily, the external administrator will request that creditors provide details of the debt owing in the form of a Formal Proof of Debt (“POD”) which is the prescribed form that enables a creditor to lodge their claim in the external administration.

Depending on the specific circumstances in the external administration, the external administrator may request that either an ‘Informal POD’ or a ‘Formal POD’ be completed.

Generally speaking, both an ‘Informal’ and ‘Formal’ POD will require the following details from the creditor:

  • The name and contact details of the creditor (it is important that creditors notify the external administrator of any change of address to ensure they continue to receive correspondence about the status of the external administration);
  • The quantum of the debt owing and a description of the nature of the debt (i.e. a loan, supply of goods which remains unpaid, etc); and;
  • Details of any security held (if applicable).

Another common query from creditors is whether their claim is ‘secured’ or ‘unsecured’. To determine whether a debt is ‘secured’ or ‘unsecured’, a creditor will need to consider the following:

  • Whether they have entered into any agreements with the debtor that give rise to a security interest;
  • Whether they have registered that interest on the Personal Property Securities Register (“PPSR”) as against the debtor; and
  • Whether they hold any other forms of security at law (Eg. guarantees, liens, retention of title).

The POD should be accompanied with supporting documentation in order to substantiate the claim (E.g. tax invoices and supplier statements, written agreement/s with the debtor etc).

An external administrator will ordinarily adjudicate on claims received from creditors:

At a meeting of creditors where voting rights need to be determined;

  • When the creditor votes on a proposal without a meeting of creditors;
  • When declaring a dividend; or
  • When requested to do so by the creditor.

During the adjudication process the external administrator will assess the validity of the creditor claims. Where supporting material is not provided, the external administrator may request further information, partially admit or reject the claim.

Creditors should be conscious any deadline for the POD to be submitted as there can be consequences for not providing a validly completed POD by the relevant due date, particularly in the case of declaring a dividend where the creditor may be precluded from participating in same.

If you are experiencing difficulty, need advice about your business’s way out of the Covid-19 crisis, or would like to know more about the help on offer, please contact Andre Nguyen or Shane Cremin on (03) 9670 8700.

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