(The cold remains of what began with a passionate start… Billy Joel)

Two recent important decisions have clarified whether or not trust assets held by an insolvent corporate trustee should be distributed pursuant to the priority regime for unsecured creditors in the Corporations Act 2001 (Cth) [1].

On 28 February 2018 the Victorian Supreme Court of Appeal handed down its judgment in the highly anticipated Amerind appeal decision [2], while a Full Federal Court decision was still pending in which that Court was considering the same issues (matter of Killarnee Civil & Concrete Contractors Pty Ltd (In Liquidation)).

The Amerind appeal decision confirmed that trust assets (as assets realised to satisfy a right of indemnity) are subject to the statutory insolvency regime and that, in a liquidation (or where S.433 applies), those realisations are to be distributed in accordance with the priority regime set out in S.556 of the Act.

The Court found that Amerind’s right of indemnity from trust assets for liabilities it incurred as trustee was property of the company, and not property of the trust.

For employees of corporate trustees, the decision means that any outstanding employee entitlements owed to them will be recoverable in accordance with the priority afforded by the Act.

On 21 March 2018 the Full Federal Court’s Killarnee decision [3] was delivered, which agreed with the Amerind decision in relation to the application of the priority regime to the trustee’s right of indemnity.

There remains the query regarding the availability for trust and non-trust creditors to the proceeds of the trustee’s right of indemnity, and the issue of the power of the liquidator of a disqualified trustee to sell trust assets.

[1] In particular, SS555,556,560 and 561 of the Act
[2] Commonwealth of Australia v Matthew James Bymes and Andrew Stewart Reed Hewitt in their capacity as joint and several Receivers and Managers of Amerind Pty Ltd (Receivers and Managers appointed) (In Liquidation) & Ors [2018] VSCA 41
[3] Jones (Liquidator) v Matrix Partners Pty Ltd, in the matter of Killarnee Civil & Concrete Contractors Pty Ltd (In Liquidation) [2018] FCAFC 40

13 July 2018