- Amerind Pty Ltd (“Amerind“) carried on a business solely as trustee of a trading trust. It maintained credit facilities with Bendigo and Adelaide Bank Ltd (“the Bank“).
- After terminating those facilities and demanding repayment, the Bank appointed the second respondents (“the receivers“) as receivers and managers of Amerind pursuant to a general security deed. Amerind’s creditors then resolved that the company be wound up in insolvency.
- The receivers realised Amerind’s assets and satisfied its obligations to the Bank out of those proceeds. After providing what the receivers considered to be an appropriate estimate of their remuneration, the surplus remaining for distribution was $1,619,108, which were the proceeds of the realisation of its inventory.
- The Commonwealth, which had advanced accrued wages and entitlements totalling $3.8 million to Amerind’s former employees, claimed an entitlement to payment out of that surplus in priority to other creditors, including the appellant, pursuant to sections 433(3), 556(1)(e) and 560 of the Corporations Act 2001 (Cth) (“the Act“).
- Does section 433 of the Act, which requires a receiver to pay certain unsecured employee creditors in priority to secured creditors out of circulating assets, apply to trust asset proceeds in the winding up of an insolvent corporate trustee?
- The High Court unanimously held that in winding up a corporate trustee, the “property of the company” available for paying creditors includes as much of the trust assets as the company is entitled, in exercise of its right of indemnity, to apply in satisfying the claims of creditors, but that proceeds from an exercise of the right of exoneration may be applied only in satisfaction of trust liabilities to which the right relates.
- In terms of the above applying to employees:
- Employees will have priority over secured creditors to circulating assets coming into the hands of the receiver on the date of the receiver’s appointment.
- Employees will then have priority over other unsecured creditors to any assets that remain available for distribution amongst the general pool of creditors once secured creditors have been paid.
- If the liquidator has been appointed to a corporate entity which administers a number of trusts, the liquidator must treat each of those trusts as separate funds, applying the two above principles of priority to each individual fund.
“The fundamental reason why this appeal must be dismissed flows from an appreciation that s 433 of the Act is not based upon a conception of a trustee company’s rights that draws a sharp division between, on the one hand, the rights held on trust and, on the other hand, the trustee’s powers in association with those rights, here the power of exoneration [as a subset of the trustee’s right of indemnity]. The rights of the trustee, collectively so viewed, can be used for the benefit of the trustee in discharging debts to trust creditors and, to that extent, when the subject of a circulating security interest they are property of the company coming into the hands of a receiver. From that property the receiver must pay various debts, including employee debts, in priority to any claim for principal or interest in respect of debentures secured by that circulating security interest.
…It would be perverse if the Act operated to deny employee creditors a particular priority over the holders of a circulating security interest solely for the reason that the company which employed them was, perhaps even unknown to the employees, trading as a trustee.”
(The High Court at paragraphs  – )
The full text is available here: http://eresources.hcourt.gov.au/downloadPdf/2019/HCA/20
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