What Liquidation Does For Secured Creditors, And What It Does For You

This article analyses the liquidation process, challenging the much repeated proposition that secured claimants 'stand outside' liquidation. It is argued that this proposition (i) is a product of a misunderstanding of the dual duality in the nature of liquidation proceedings, in that, in principle, they serve both public and private functions, and they further the interests of both secured and unsecured creditors; (ii) overlooks how secured creditors benefit from liquidation, and also how unsecured creditors have a real interest in the proper administration of their debtor's encumbered assets; (iii) mistakes the secured creditor's choice in usually being able to gain immunity from the liquidation process, for a compulsion to stand exiled from this process; (iv) is incorrect as a matter of history and practice; and (v) is rendered unsustainable by the statutory text. It concludes that secured creditors have never 'stood outside' liquidation, that liquidation is an important tool for the protection of their interests, and that it is right to require floating charge holders to pay their fair share of liquidation expenses.