The Supreme Court of Victoria has recently considered whether trust property is subject to the priority regime provided for in section 556 of the Corporations Act 2001 (Cth) (the Australian equivalent of New Zealand's Schedule 7 of the Companies Act 1993). It also considered whether a trustee's right of indemnity is subject to the obligations of receivers under section 433 of that Act, to pay employee entitlements in priority out of assets subject to a circulating security interest.
Amerind Pty Ltd was the trustee company of a trading trust that was in the business of manufacturing and distributing decorative and architectural finishes. Administrators were appointed by Amerind's director and its principal financier, Adelaide Bank, appointed receivers. Subsequent to their appointment, the receivers continued trading and a surplus existed once Adelaide Bank had been repaid.
The three primary issues for determination by the Court were whether:
- The receivership surplus was trust property or company property
- The priority regime set out in section 556 required the receivers to pay preferential debts from the surplus instead of paying it into Court pending determination of competing claims
- The trustees' right of indemnity was subject to section 433.
In relation to the first issue, the Court held that as Amerind had operated as a corporate trustee, the surplus constituted trust property. As to the second and third issues, the Court held that both sections 433 and 556 only apply to property of the company and do not include trust assets (nor the trustees' right of indemnity). Accordingly, the surplus and the right of indemnity were not subject to the preferential claims in either section.
The case continues the recent trend in the law that where a company operates as a trustee, preferential creditors do not enjoy the statutory priority to which they otherwise would be entitled.
See the full judgment here.