Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth [2019] HCA 20 (19 June 2019)
Last Updated: 26 June 2019
HIGH COURT OF AUSTRALIA
KIEFEL CJ,
BELL, GAGELER, KEANE, NETTLE, GORDON AND EDELMAN
JJ
CARTER HOLT HARVEY WOODPRODUCTS
AUSTRALIA PTY LTD APPELLANT
AND
THE COMMONWEALTH OF AUSTRALIA & ORS RESPONDENTS
Carter Holt Harvey Woodproducts Australia Pty Ltd v The
Commonwealth
[2019] HCA 20
19 June 2019
M137/2018
ORDER
Appeal dismissed with costs.
On appeal from the Supreme Court of Victoria
Representation
D J Williams QC for the appellant (instructed by Polczynski Robinson)
J P Moore QC with J A G McComish for the first respondent (instructed by King
& Wood Mallesons)
No appearance for the second respondents
Submitting appearance for the third respondent
Notice: This copy of the Court's Reasons for Judgment is subject to formal
revision prior to publication in the Commonwealth Law
Reports.
CATCHWORDS
Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth
Corporations – External administration – Receivers and other
controllers of property – Priority debts – Where
corporation
carrying on business solely as trustee created circulating security interest
over trust assets in favour of bank –
Where receivers and managers
appointed by bank realised trust assets and satisfied obligations to bank
– Whether surplus proceeds
required to be paid in accordance with
Corporations Act 2001 (Cth), s 433 – Whether corporation's
right of indemnity is property of the company "comprised in or subject to a
circulating security interest"
within meaning of s 433 – Whether
trust assets themselves are such "property of the company" – Whether
statutory order of priorities for payment
of debts applicable to distribution of
surplus proceeds from trust assets among trust creditors – Whether
proceeds from exercise
of insolvent corporate trustee's right of exoneration to
be applied only in satisfaction of trust liabilities to which it relates.
Trusts – Trustees – Right of indemnity – Whether trustee's
right of indemnity confers beneficial interest in trust
assets – Whether
such interest is "property" within meaning of Corporations Act,
s 9.
Words and phrases – "beneficial interest", "circulating asset",
"circulating security interest", "floating charge", "insolvent
corporate
trustee", "payment of creditors out of property", "power of exoneration", "PPSA
security interest", "priority payments",
"property", "property comprised in or
subject to a circulating security interest", "property held by the bankrupt on
trust", "property
of the company", "right of exoneration", "right of indemnity",
"taking possession or assuming control of property", "trust asset",
"trust
liabilities".
Corporations Act 2001 (Cth), ss 9, 51, 51C, 433, 555, 556,
560.
Personal Property Securities Act 2009 (Cth), ss 10, 12,
340.
KIEFEL CJ, KEANE AND EDELMAN JJ.
Introduction
- In
1988, the Australian Law Reform Commission observed that although the trading
trust had been used extensively for more than a
decade, "the companies
legislation makes little or no provision for corporate trustees which become
insolvent"[1].
That observation remains true
today[2]. The
issue that arises on this appeal, which was foreseen nearly four decades
ago[3],
essentially concerns whether creditors who would be priority creditors of an
insolvent company are priority creditors when that
company trades as the trustee
of a trading trust.
- The
context in which the question arises is one where, for more than a century,
employees have had priority in the distribution of
property by liquidators over
the holders of a floating
charge[4] or, as
it is now described, a circulating security
interest[5]. The
issue on this appeal is whether the relevant provision in relation to receivers
in s 433 of the Corporations Act 2001 (Cth), duplicating
those in relation to
liquidators[6],
gives the same priority to employees of a trading trust over other creditors of
a trading trust. In other words, do employees of
a company that is in
receivership or insolvency have no statutory priority if that company happens to
have been trading as the trustee
of a trading trust and holding its assets on
trust?
- The
primary judge (Robson J) effectively answered this question "yes",
essentially on the basis that assets held on trust are not
the property of the
company. The Court of Appeal of the Supreme Court of Victoria
(Ferguson CJ, Whelan, Kyrou, McLeish and Dodds-Streeton
JJA)
effectively answered this question "no", with reliance upon the right of
indemnity that a trustee company has to use trust assets
for its own benefit and
exonerate itself from its liability to trust creditors. For the reasons that
follow, the answer given by
the Court of Appeal was correct and the appeal must
be dismissed.
Background
- Amerind
Pty Ltd ("Amerind") carried on a business as the trustee for a trading trust,
the Panel Veneer Processes Trading Trust.
It traded solely as trustee of that
trust. It had various debt facilities with the Bendigo and Adelaide Bank ("the
Bank") which
were secured by a range of securities. One of those was a debtor
finance facility by which the Bank was entitled to purchase Amerind's
book
debts.
- On
11 March 2014, Amerind's sole director appointed administrators
("the Administrators") to Amerind pursuant to s 436A of the
Corporations Act. On the same day, the Bank then appointed receivers and
managers ("the Receivers") to Amerind. The Bank, which had earlier
demanded
payment from Amerind, exercised rights under its debtor finance
facility and gave written notice to Amerind's debtors, thereby perfecting
a
legal assignment of their debts from Amerind to the Bank.
- The
Receivers were appointed to a business with assets that included cash at bank,
stock, plant and equipment, and reserve amounts
contingently owed to Amerind
under the Bank's debtor finance facility. For about a month after their
appointment the Receivers continued
to trade on a "business as usual" basis
whilst seeking a purchaser for the business. On 14 April 2014, the
Receivers began a wind
down phase in which they realised the vast majority of
the stock, including stock which was the subject of a security interest of
the
Bank.
- On
13 August 2014, at the second meeting of Amerind's creditors, the
creditors resolved that Amerind be wound up in insolvency.
The Administrators
were appointed as joint and several liquidators of Amerind. By this time, the
Receivers had realised most of
Amerind's assets and were in a position to
retire. Additionally, all of the Bank's secured debt had been discharged and
that discharge
was not, and is not, contested. The Bank's discharge was by
means that included payment of almost $21 million from the debts that
had
been assigned to it under its security. The Receivers had a receivership
surplus of $1,619,018. However, before they could
retire, the Receivers were
confronted with competing claims in relation to that surplus. Two of the
competing claims to the receivership
surplus that were in issue at trial are the
subject of this appeal.
- One
claim in relation to the receivership surplus was by the first respondent
to this appeal, the Commonwealth of Australia. Under
a statutory scheme known
as the Fair Entitlements Guarantee Scheme, the Commonwealth had paid
$3.8 million in accrued wages and entitlements
to former employees of
Amerind. By s 560 of the Corporations Act, the Commonwealth had the
same priority entitlement as those employees who were entitled to payment as a
priority under ss 433 and 556 of the Corporations Act. The
competing claim to the surplus was by the appellant, Carter Holt Harvey
Woodproducts Australia Pty Ltd ("Carter Holt"), a creditor
of Amerind, which
submitted that s 433 of the Corporations Act did not afford priority
to the Commonwealth.
- The
second respondents to this appeal are the Receivers. Since the receivership
surplus has already been diminished by the costs
of the Receivers' ongoing
appointment including the costs of this litigation, and because the Receivers
had already had substantial
input into the orders of the primary judge
(supported by Carter Holt) and the Court of Appeal (supported by the
Commonwealth), the
Receivers did not seek to make any submissions in this Court
on the merits of the competing claims.
Section 433 of the
Corporations Act
- The
provision with which this appeal is centrally concerned is s 433 of the
Corporations Act. That section is the modern iteration of a provision
that has existed in various forms in insolvency legislation since at least
1897[7]. Its
first iteration arose after the development in the 1870s of a new form of
security, the floating
charge[8]. As
Lord Millett observed of that
history[9]:
"Valuable
as the new form of security was, it was not without its critics. One of its
consequences was that it enabled the holder
of the charge to withdraw all or
most of the assets of an insolvent company from the scope of a liquidation and
leave the liquidator
with little more than an empty shell and unable to pay
preferential creditors. Provision for the preferential payment of certain
classes of debts had been introduced in bankruptcy in 1825 and was extended to
the winding up of companies by section 1(1)(g) of
the Preferential Payments
in Bankruptcy Act 1888. Section 107 of the Preferential Payments in Bankruptcy
Amendment Act 1897 now
made the preferential debts payable out of the
proceeds of a floating charge in priority to the debt secured by the
charge."
- With
one exception, s 433 has been expressed in essentially the same form since
1982[10]. The
exception is a change in terminology in
2012[11].
Prior to 2012, s 433 of the Corporations Act had the effect that a
receiver who was appointed on behalf of the holders of any debentures of a
company that were secured by a floating
charge was required to pay "out of the
property coming into his, her or its hands" certain debts, including employee
claims, in priority
to any claim for principal or interest in respect of the
debentures. The section, with its century-old antecedents, prevented "[t]he
debenture holder, by virtue of his (crystallised) floating charge, scoop[ing]
the
pool"[12].
- The
change in 2012 was the consequence of the replacement by the Personal
Property Securities Act 2009 (Cth) of the concept of a floating charge with
the concept of a circulating security interest. The change of language was not
intended
to affect existing rights under the Corporations Act, including
the priority given to employees over unsecured
creditors[13].
Other than preserving those floating charges that existed before 2012, a
"circulating security interest" is defined in s 51C(a) of the
Corporations Act as also including "a PPSA security interest, if:
(i) the security interest has attached to a circulating asset within the
meaning
of the Personal Property Securities Act 2009; and (ii) the
grantor (within the meaning of that Act) has title to the asset". A
"circulating asset" is defined in s 340 of the Personal Property
Securities Act in terms similar to the old floating charge, including where,
by s 340(1)(b), the "secured party has given the grantor express or implied
authority for any transfer of the personal property to be made, in the
ordinary
course of the grantor's business, free of the security interest". The change in
terminology in s 433 of the Corporations Act from "floating charge"
to "circulating security interest" thus aligned the Corporations Act
and the Personal Property Securities
Act[14].
- Section 433(2)(a)
of the Corporations Act provides for two alternative preconditions to the
operation of the priority regime in s 433(3). Those two alternative
preconditions are:
"[(1)] a receiver is appointed on behalf of the
holders of any debentures of a company or registered body that are secured by a
circulating
security interest, or [(2)] possession is taken or control is
assumed, by or on behalf of the holders of any debentures of a company
or
registered body, of any property comprised in or subject to a circulating
security interest".
- Other
preconditions in s 433(2) are not in dispute on this appeal, with the
result that if either of the two preconditions set out above is met then
s 433(3) applies.
- Section 433(3)
provides:
"In the case of a company, the receiver or other person
taking possession or assuming control of property of the company must pay,
out
of the property coming into his, her or its hands, the following debts or
amounts in priority to any claim for principal or interest
in respect of the
debentures:
(a) first, any amount that in a winding up is payable in priority to unsecured
debts pursuant to section 562;
(b) next, if an auditor of the company had applied to ASIC under
subsection 329(6) for consent to his, her or its resignation as auditor and
ASIC had refused that consent before the relevant date – the
reasonable
fees and expenses of the auditor incurred during the period beginning
on the day of the refusal and ending on the relevant date;
(c) subject to subsections (6) and (7), next, any debt or amount that in a
winding up is payable in priority to other unsecured debts
pursuant to
paragraph 556(1)(e), (g) or (h) or
section 560."
- Sections 556(1)(e),
(g) or (h) and 560 of the Corporations Act are the provisions that give
priority to certain claims, including claims by employees and by those, here the
Commonwealth, who advance
funds on behalf of the employer to meet
them.
The proceedings before the primary judge and the Court of
Appeal
- The
Receivers applied to the primary judge for directions on a number of questions,
and the parties formulated an agreed list of
issues[15]. It
is not necessary to set out all of those issues and the answers provided to the
questions. It suffices for this appeal to describe
a number of relevant
conclusions reached by his Honour in the course of answering those
questions. First, the receivership surplus
is trust
property[16].
Secondly, the Bank, and therefore the Receivers, held debentures over the assets
of Amerind and those debentures were secured by
a circulating security
interest[17].
Thirdly, the assets of Amerind included four classes of circulating assets
that Carter Holt had alleged were not
circulating[18]:
cash at bank, purchase price paid by the Bank to Amerind under two debtor
finance facilities to purchase certain accounts, realisation
of stock other than
through credit sales, and tax refunds and sundry receipts. Fourthly, the
trustee's right to be indemnified from
the trust assets is not a circulating
asset within s 340 of the Personal Property Securities Act nor is it
a floating charge, and therefore it does not fall within s 51C of the
Corporations Act[19].
Fifthly, in principle the priority regime in s 433(3) of the
Corporations Act applies to the proceeds of the various assets
comprising the receivership
surplus[20].
However, sixthly, ss 433 and 556 of the Corporations Act apply only
to the property of the company and do not apply to trust assets or to the
trustee's right of indemnity since neither of
those is the property of the
company[21].
It is this final point which sits at the heart of this appeal.
- There
were broadly two groups of issues before the Court of
Appeal[22].
One group of issues concerned whether relevant assets fell within the ambit of
property which is secured by a "circulating security
interest". Carter Holt
alleged that Amerind's right of indemnity from the trust assets was the only
asset that could be the property
of Amerind but that it was not subject to a
circulating security interest and therefore the preconditions in s 433(2)
were not met. The Court of Appeal rejected this submission, concluding
that it was not necessary for the right of indemnity to be
the subject of a
circulating security
interest[23],
but that even if it were necessary to characterise the right of indemnity as
circulating or non-circulating then the character of
the trust assets as
"circulating" was one that "flowed through to the right of
indemnity"[24].
- The
Court of Appeal also dismissed a notice of contention by Carter Holt, which had
disputed the characterisation by the primary
judge of three classes of assets as
circulating
assets[25].
There is no appeal from that conclusion, which has the effect that the
debentures under which the Receivers were appointed were
secured by a
"circulating security interest", over trust property which included those three
classes, within the meaning of s 51C of the Corporations
Act[26].
Although the "circulating assets" that were subject to the circulating security
interest were trust property, Amerind had, by a
"General Security Deed", dated
19 December 2012, which defined "personal property", "security interest", and
"collateral" broadly,
granted a security interest in favour of the Bank over all
property of any kind whether Amerind was "the beneficial owner" or held
the
property "as trustee of a trust".
- The
other group of issues concerned whether the receivership surplus was trust
property and, if so, whether s 433 of the Corporations Act applied
to it with the effect that rights held by Amerind on trust were subject to the
priority regime in ss 433(3), 556, and 560. Included within this group of
issues was the question whether the trustee's "right of indemnity", to exonerate
itself from trust
liabilities, is property of the company. The Court of Appeal
held that the receivership surplus fell within s 433 of the Corporations
Act and that the effect of this was that the surplus was subject to the
priority regime in ss 433(3), 556, and
560[27].
The
issues before this Court
- Before
this Court, Carter Holt's grounds of appeal were broadly twofold. First, it was
said that s 433 of the Corporations Act did not apply because,
contrary to the reasoning of the Court of Appeal, Amerind's right of indemnity
was not "property comprised
in or subject to a circulating security interest"
within s 433(2)(a). This ground of appeal was effectively concerned with
the preconditions to the operation of s 433. Secondly, it was asserted
that the Court of Appeal erred by concluding that the funds held by the
Receivers were proceeds of Amerind's
exercise of its right of indemnity and
therefore available for distribution within s 433 of the Corporations
Act. This ground of appeal effectively asserted that the funds obtained
from the sale of trust assets were trust property which was
not subject to the
Receivers' duty to pay, "out of the property coming into his, her or its hands",
creditors of Amerind in accordance
with s 433(3) of the Corporations
Act.
- Each
of the Commonwealth's submissions in response focused upon a trustee company's
right of indemnity. In particular, the Commonwealth
relied upon the power of
the trustee to use trust assets to exonerate itself from debts properly incurred
in the course of trust
business. The Commonwealth's primary submission was that
this power of exoneration entitled the Receivers to sell trust assets to
obtain
a fund to be used to discharge all of the company's debts, whether or not
incurred with authority in the course of trust business.
The Commonwealth's alternative submission was that the power of exoneration
entitled the Receivers only to discharge debts that
were incurred with authority
in the course of trust business. Since all of the debts of Amerind were
authorised debts incurred in
the course of the trust
business[28]
the appeal must be dismissed if either of these submissions is accepted.
- An
appreciation of fundamental principles of trust law is necessary to understand
the operation of s 433 of the Corporations Act, since that provision
and its antecedents were enacted against the background of, and assumed the
operation of, these fundamental
principles. The resolution of this appeal
depends upon the application of particular principles concerning (i) the
benefit in insolvency
of rights held on trust, and (ii) the nature of the
trustee's "right of indemnity", in particular its power of exoneration, in
insolvency.
Application of these principles determines the ultimate question of
whether a payment to trust creditors using the trustee's power
of
exoneration is a payment "out of the property coming into [the receiver's]
hands" within s 433(3).
The benefit in insolvency of rights
held on trust
- Although
the Commonwealth's written submissions focused upon scenarios involving
permutations of solvency and insolvency of a trustee
and a trust, the trust is
not a separate entity and therefore does not have a separate solvency status
from the trustee. A trustee
is personally liable for debts incurred as
trustee[29].
This is so whether or not the trustee contracted with creditors as a named
trustee, and hence whether or not the creditors knew
of the existence of the
trust[30].
Similarly, the expressions "trust assets" and "trust creditors" are simply
shorthand for, respectively, the rights held on trust
by the trustee and those
creditors of the trustee whose debts were properly incurred with authority in
the course of trust business.
- Although
a trustee is personally liable to creditors, it has been established for
centuries in bankruptcy law that rights held by
a bankrupt on trust do not
generally form part of the bankrupt's estate that is available for general
distribution amongst
creditors[31].
In this respect, the common law courts took notice of a
trust[32].
Despite Australian bankruptcy legislation having adopted a broad definition of
"property"[33],
it also expressly adopted this principle by excluding from the property
divisible among creditors all property held by the bankrupt
on trust for another
person[34].
- The
Corporations Act contains a similarly broad definition of
"property"[35]
to the bankruptcy legislation but it does not contain an equivalent express
exclusion of property held by a company on trust for
another person.
However, the same "elementary, and
fundamental"[36]
principle that generally precludes distribution of trust property from
distribution among creditors has been consistently applied
in Australia to
trustee
companies[37].
It has been said that, as a general proposition, it would be "extraordinary, in
the context of insolvency law, if 'property of
the company' included property of
which it was a trustee and in which it had no beneficial
interest"[38].
Hence, as the Court of Appeal correctly observed, the exclusion of property held
on trust from the property of a trustee, while
express in bankruptcy, applies
"by undisputed analogy in the case of
corporations"[39].
- The
reason that rights held on trust by an insolvent company or bankrupt individual
are generally excluded from division amongst
the creditors of the company or of
the bankrupt individual is that a liquidator's power over the rights of an
insolvent company and
the statutory assignment of rights in bankruptcy have
always been concerned only with those rights that enure in law "for the benefit
of" the "personal estate" of the bankrupt or insolvent
person[40],
even if in some cases that legal benefit might not be a "practical
benefit"[41].
By contrast, other than as permitted by rules of law or the terms of the trust,
the trustee owes a "personal obligation to deal
with the trust property for the
benefit of the beneficiaries, and this obligation must be annexed to the trust
property"[42].
The trustee does not generally have any entitlement to deal with the rights
held on trust for the trustee's own benefit. Courts
of law took notice of the
trust because "it would be absurd" for rights to have vested in bankruptcy "for
no other purpose but in
order that there may be a bill in equity brought against
[the trustee in
bankruptcy]"[43].
Hence, rights held on trust were, and are, generally excluded from inclusion in
the statutory concepts of the "property" of the
bankrupt or the "property" of
the insolvent company.
- However,
the general principle that excludes those rights held on trust from division
among creditors does not apply to the extent
to which a trustee is permitted to
benefit personally by "deriv[ing] any
benefit"[44]
from the rights held on trust. One means by which a trustee can benefit
personally from the trust rights is the trustee's power
to use those trust
rights to indemnify itself from liabilities. The existence of that "right of
indemnity" means that, to the extent
of the power, the trust rights are "no
longer property held solely in the interests of the beneficiaries of the
trust"[45].
The
nature of the power of exoneration in insolvency
The trustee's right of indemnity
- Whether
sourced in
statute[46], or
as an express term or equitable
implication[47]
in the trust instrument, the trustee has two rights to obtain
indemnity[48].
In Chief Commissioner of Stamp Duties (NSW) v
Buckle[49],
this Court approved the following passage from Scott on
Trusts[50],
which described the general characteristics of the two rights of
indemnity:
"Where the trustee acting within his powers makes a
contract with a third person in the course of the administration of the trust,
although the trustee is ordinarily personally liable to the third person on the
contract, he is entitled to indemnity out of the
trust estate. If he has
discharged the liability out of his individual property, he is entitled to
reimbursement; if he has not
discharged it, he is entitled to apply the trust
property in discharging it, that is, he is entitled to exoneration."
- Although
both of these rights of indemnity might strictly be described as powers
of indemnity, their description as "rights" emphasises that they do not exist
independently of the rights that the trustee holds
on trust. The powers of
indemnity are concerned with a means by which trust rights can be used.
They are thus part and parcel of
the trust "rights" in a broad sense. For
instance, a trustee's rights concerning "cash at bank" include both the right to
be paid
money on request and the power to direct that those funds be used to
discharge debts owed to trust creditors.
- The
trustee's power to be reimbursed from the trust fund for the entirety of a
payment that has been made by the trustee personally,
sometimes also described
as
"recoupment"[51],
is not in issue in this appeal. This appeal is concerned with the trustee's
power of exoneration, which is a power to use trust
funds to discharge
debts that were properly incurred by the trustee in the course of trust
business. By the exercise of the power
of exoneration, equity ensures that the
trustee "need not pay and perhaps ruin himself before seeking
relief"[52].
However, the value of the power of exoneration, like the value of the power of
reimbursement, may decrease by "netting-off reciprocal
monetary
obligations"[53]
to the extent to which the trustee has incurred a duty to increase the trust
funds or, more loosely, a "liability which the trustee
owes to the
trust estate"[54].
- The
power of exoneration, like that of reimbursement, has been described as
conferring upon the trustee "a proprietary
interest"[55]
in the trust assets. These labels, "trust assets" and the trustee's
"proprietary interest", describe the combination and effect
of the legal and
equitable rights which the trustee holds on trust. Hence, where a trustee has
legal title, as well as equitable
or statutory powers of indemnity that are
concerned with ways in which the legal title can be used, the legal title is not
independent
of those powers of indemnity. The legal title held by the trustee
has thus been described as subject to an equitable charge or lien
in favour of
the trustee to secure the powers of
indemnity[56].
As this Court explained in Chief Commissioner of Stamp Duties (NSW) v
Buckle[57],
the "trust assets" are subject to competing "proprietary rights, in order
of priority, of the trustee and the beneficiaries". The
trustee's rights take
priority over those of the beneficiaries to the extent of the trustee's powers
of indemnity. Where the "trust
assets" need to be sold to reimburse or
exonerate the trustee, the beneficiaries' rights have lower priority than the
trustee's rights.
A court may authorise the sale of assets held by the trustee
so as to satisfy the power of indemnity, as a step in the process of
the trustee
exonerating itself from authorised liabilities, in the same manner as any other
equitable
charge[58].
- This
well-established[59]
priority that the trustee's rights have over the equitable rights of the
beneficiaries was justified in In re Johnson; Shearman v
Robinson[60]
by Jessel MR on the basis that:
"it would not be right that the
cestui que trust should get the benefit of the trade without paying the
liabilities; therefore the Court says to him, You shall not set up a
trustee
who may be a man of straw, and make him a bankrupt to avoid the
responsibility of the assets for carrying on the trade".
The operation of the right of exoneration in insolvency
- Trust
creditors take the insolvent trustee's power of exoneration as they find it.
They can enforce the power of exoneration by
subrogation to the trustee's
rights[61] but
the creditor "can be no better off than the
trustee"[62].
A trustee in bankruptcy or liquidator is constrained in the same way. It is
"established beyond all
question"[63]
that the rights of a trustee in relation to trust assets, to the extent of the
associated powers of indemnity, pass to her or his
trustee in
bankruptcy[64].
The same is true when control over those rights, rather than title, passes to a
liquidator. And just as a trustee's ability to
exercise its power of
exoneration for personal benefit is limited to the terms of the power of
exoneration, so too is the trustee
in bankruptcy or liquidator limited by the
terms of the power of exoneration in the exercise of control over the trust
rights[65].
- An
analogy can be drawn with the power of a purchaser of land to obtain specific
performance. Just as a purchaser's proprietary
rights to, and ability to
benefit from, land under a contract of sale of land are commensurate with the
purchaser's power to obtain
specific performance of the contract of
sale[66], so
too a trustee's proprietary rights to, and ability by its power of exoneration
to benefit from, trust assets are commensurate
with the trustee's power to use
those assets to discharge the trustee's personal liability for liabilities
properly incurred as trustee.
As Allsop CJ pointed out in Jones v
Matrix Partners Pty Ltd; Re Killarnee Civil & Concrete Contractors Pty Ltd
(In liq)[67],
the "nature and character" of the power of exoneration, namely that it is
exercisable only to pay trust creditors, is not altered
in the hands of a
liquidator or trustee in bankruptcy.
- If
a liquidator or trustee in bankruptcy were able to assert control over property
of "the bankrupt's because it came to his hands
and at the same time [were able]
to reject the terms and conditions on which alone the bankrupt procured it ...
[the consequence
would be] manifestly unjust and contrary to
principle"[68].
In Vagrand Pty Ltd (In liq) v
Fielding[69],
the Full Court of the Federal Court of Australia put the point this
way:
"If an asset is held by the company in trust for somebody else,
the liquidator is bound by the trust ... [T]he assets come to the
liquidator
with their history and inherent characteristics. Although the liquidator takes
the assets on behalf of the creditors,
third parties retain any rights which
enure to them as a result of that history or those characteristics."
- The
Commonwealth's primary submission was that this conclusion was wrong and that
proceeds from the sale of trust assets should be
used, after payment of priority
creditors, for the discharge of all other debts, not merely
trust creditors. Although in this appeal
the only creditors are trust
creditors it is necessary to address this submission because it directly affects
the interpretation
of s 433 and its antecedents.
- The
Commonwealth relied upon the "distinctly
fragile"[70]
decision of the Full Court of the Supreme Court of Victoria in Re Enhill
Pty
Ltd[71].
In that case the Full Court (Young CJ and Lush J, Gray J agreeing
with both judgments) held that a trading trustee company's right
of indemnity,
namely its power of exoneration, entitled it to have recourse to trust assets in
a winding up under s 292(1)(a) of
the Companies Act 1961 (Vic) so
that the liquidator was entitled to be paid his remuneration, costs and expenses
out of moneys realised from the use or sale
of the trust
assets[72].
However, the Full Court also said that, after payment of the priority debts, the
proceeds from the sale of trust assets could be
used to discharge all other
debts of the insolvent company and not merely those debts incurred in the course
of performance of the
trust
duties[73].
- Young CJ
reasoned that if proceeds from the sale of trust assets were only applied to
discharge the debts of creditors of the trust
then this would "deny the very
purpose of the right to indemnity which is to exonerate the trustee's personal
estate"[74].
His Honour thus
rejected[75] an
earlier decision of Needham J to the
contrary[76].
Lush J reached the same conclusion by treating the "limited purposes" for
which the right of exoneration can be used as "dehors
the [Companies Act
1961
(Vic)]"[77].
- With
respect to Young CJ, the purpose of the power of exoneration is not to
exonerate the trustee's personal estate unconditionally.
It is to exonerate the
trustee's estate only from authorised liabilities incurred in the course of the
business of the trust. And,
with respect to Lush J, the "limited purposes"
of the power of exoneration did not fall outside the Companies Act, nor
do they fall outside subsequent corporations legislation. Those limited
purposes are part of the nature and character of the
power of exoneration
itself. The liquidator took the power of exoneration with all of its
characteristics. As Cozens-Hardy MR said
in In re Richardson; Ex parte
St Thomas's Hospital
(Governors)[78]:
"If
and when [a trustee in bankruptcy] pays the amount of the debt he will have a
right to treat the money, which he can then sue
for from the person who is bound
to indemnify, as part of the estate, but unless and until he pays I fail to see
how it can be in
accordance with justice and common fairness that he should be
allowed to augment the estate of the bankrupt in a way which results
in this,
that the greater the liability the greater will be the advantage to the estate.
The trustee cannot be allowed to say 'I
will take the money recovered under my
right [of exoneration] against the claim of St Thomas's Hospital and will apply
it, not towards
satisfying the claim of the hospital in the way which the
indemnity implies, but as part of the general assets, and I will give no
effect
whatever to the indemnity except so far as the hospital come in and prove for
their claim in the bankruptcy.'"
- Nine
months after the Victorian decision in Re Enhill Pty Ltd, the
Full Court of the Supreme Court of South Australia departed from that
decision in In re Suco Gold Pty Ltd (In
liq)[79].
In In re Suco Gold Pty Ltd (In liq), a trustee company of two unit
trusts had incurred debts in the course of its duties as trustee of those
trusts. The liquidator
of the trustee company applied for directions as to the
use of trust assets, including whether the liquidator could have recourse
to the
trust assets for the purpose of discharging costs and expenses of the winding
up, and the liquidator's remuneration, as priority
debts under s 292(1)(a)
of the Companies Act 1962 (SA) before other unsecured debts. The Full
Court (King CJ and Jacobs J, Matheson J agreeing with both
judgments) concluded that
since the power of exoneration could be used, in each
case, to pay the creditors of each of the two trusts of which the company was
trustee, and since the liquidator's remuneration and the costs and expenses of
winding up were to be given priority over those unsecured
creditors, the
liquidator was entitled to have recourse to the property of each trust for that
remuneration and those costs, so far
as they were incurred in relation to each
trust[80].
- In
an approach supported by the Commonwealth in the alternative, King CJ in
In re Suco Gold Pty Ltd (In liq) said that the decision in Re Enhill
Pty Ltd was "in conflict with fundamental principles of the law of
trusts"[81].
As his Honour concluded, if a trustee in bankruptcy, or a liquidator in the
case of a trustee company, were permitted to use the
trust funds for a purpose
other than the discharge of properly incurred trust liabilities then "the money
is being used for an unauthorized
purpose and is being used, moreover, for the
benefit of the trustee, and of third parties, namely the non-trust
creditors"[82].
- Jacobs
and Matheson JJ agreed with the analysis of these principles by
King CJ. Jacobs J observed that the principles concerning
the power
of exoneration might not apply where the trustee has paid trust creditors from
her or his own assets and seeks reimbursement
from the trust
fund[83]. As
King CJ pointed out, the conclusion in that case was concerned with the
trustee's power of exoneration, not its power of reimbursement
by which the
proceeds from the sale of trust property become part of the property divisible
among all
creditors[84].
The power of reimbursement permits a trustee who has discharged trust
liabilities to benefit from the trust assets without the
condition limiting that
benefit to discharge of debts to trust creditors.
- The
conclusion that Re Enhill Pty Ltd was wrongly decided on this point does
not contradict the provision in s 555 of the Corporations Act that,
except as otherwise provided in that Act, "all debts and claims proved in a
winding up rank equally and, if the property of
the company is insufficient to
meet them in full, they must be paid proportionately". Recognising that the
power of exoneration
can only be used according to its terms is not to give
priority to debts incurred by the trustee with authority over other proved
debts
and claims. It is, instead, to confine the use of trust funds by the power of
exoneration to the discharge of those debts.
Further, the proportionate payment
requirement in s 555 is premised upon the extent to which the property of
the company can "meet"
those debts. The intrinsic limit of the power of
exoneration precludes it from being used to meet debts other than those incurred
with authority for the conduct of the trust business.
Are the
preconditions for the operation of s 433(3) met?
- In
its grounds of appeal, and in its written submissions, Carter Holt claimed
that a precondition in s 433(2)(a) of the Corporations Act for the
operation of s 433(3) had not been met. This involved a denial that either
(i) the Receivers had been "appointed on behalf of the holders of any
debentures
of a company or registered body that are secured by a circulating
security interest" or (ii) they had assumed control, on behalf
of the Bank,
which held debentures of Amerind, "of any property comprised in or subject to a
circulating security interest".
- The
immediate difficulty with this submission is that, as the Court of Appeal held,
and as senior counsel for Carter Holt accepted
in oral submissions, the
Receivers were appointed on behalf of the holders of debentures secured by a
circulating security interest.
That security, created by the General Security
Deed, had been registered on 20 December 2012 on the Personal Property
Securities
Register under Pt 5.3 of the Personal Property Securities
Act.
- Ultimately,
in oral submissions senior counsel for Carter Holt accepted that the expressed
preconditions in s 433(2)(a) for the operation
of s 433(3) were met.
His submission effectively became that s 433(2)(a) or s 433(3) must
contain an implication further limiting
the operation of the priority provision
in s 433(3) so that the priority is given only over circulating assets that
are the property
of the company. He submitted that this implication was
necessary because otherwise s 433 would extend to "every item of property
of the company regardless of whether it is circulating or not", contrary to the
purpose of s 433, which was to provide for priority
only over the
distribution of circulating assets. His submission was effectively that since
s 433 was concerned only with floating
charges, now circulating
security interests, the implication is necessary to avoid giving priority to the
specified debts over fixed
charges, which would disturb vested and established
property rights.
- Applying
this alleged implication in s 433 of the Corporations Act,
senior counsel for Carter Holt effectively submitted that s 433 could
have no operation in relation to the distribution of trust assets to trust
creditors by use of Amerind's power of exoneration
because Amerind's power of
exoneration does not fall within the definition of a "circulating asset" in
s 340 of the Personal Property Securities Act and is therefore
not one of the circulating assets over which the Bank held its security
interest. Conversely, although, as the Court
of Appeal held, the proceeds
comprising the receivership surplus held by the Receivers are circulating
assets, it was submitted that
they are not "property of the company".
- Carter
Holt's submissions should not be accepted for two reasons. First, there is
no need for the suggested implication. The existing
preconditions in
s 433(2)(a) of the Corporations Act prevent the specified creditors,
including employees, being given priority over the holders of fixed, or
non-circulating, security
rights. The preconditions require the appointment of,
or the control of assets by, a receiver to have arisen as a result of debentures
of a company that are secured by a circulating security interest. Debentures
that are secured by fixed, or non-circulating, security
interests are not within
the terms of s 433(2). Section 433(3) then confines the priority of
the specified creditors to a priority over claims "in respect of the
debentures", meaning those debentures
that are secured by a circulating security
interest. As the Court of Appeal correctly observed, there is no requirement in
s 433 that "the right of indemnity by means of which the receiver could
have recourse to the trust property must itself be subject to a
circulating
security
interest"[85].
- Secondly,
and fundamentally, the reason there is no such implied requirement in s 433
is that it is incorrect to treat rights held on trust by a company as if they
existed separately and independently from its power
of exoneration so that it
could be said that (i) the rights held on trust, and subject to the
circulating security interest, are
not the property of the company, but
(ii) the power of exoneration, which is the property of the company,
is not subject to the circulating
security interest. As explained above,
Amerind's power of exoneration is the means by which its trust rights can be
used for its
personal benefit as trustee. It is meaningless to ask whether
Amerind's power of exoneration is subject to the circulating security
interest
independently of the legal rights to the trust assets to which the power
relates. The point is that Amerind's legal rights
to the trust assets, to the
extent that it has power to use them for its own benefit, are thus themselves
circulating assets and
are "property of the company" within s 433.
- The
same reasoning applies to s 561 of the Corporations Act, which is
the provision cognate to s 433 but relevant to liquidators rather than
receivers. That section provides that if the "property of a company
available for payment
of creditors other than secured creditors" is insufficient
to meet payment of the debts to various priority creditors, including
employees,
then payment of those debts:
"must be made in priority over the
claims of a secured party in relation to a circulating security interest created
by the company
and may be made accordingly out of any property comprised in or
subject to the circulating security interest".
- Again,
to the extent of the power of exoneration the rights held by the trustee on
trust are the property of the company which is,
again to the extent of that
power, "available", in the sense of available to be used, for the payment of
creditors. The trust rights
held by Amerind and controlled by the Receivers are
"subject to [the] circulating security interest".
Is there a
payment "out of the property coming into [the receiver's] hands"?
- In
Re Independent Contractor Services (Aust) Pty Ltd (In liq)
[No 2][86],
Brereton J considered the applicability of s 556(1)(e) of the
Corporations Act to the trustee company in liquidation of a trading
trust. The relevant priority in that case concerned the payment of a
superannuation
guarantee charge in respect of services rendered to the company
by employees over other unsecured debts. On the liquidator's application
for directions, Brereton J held that s 556 did not require liabilities
to be paid out from trust property "because s 556 is concerned only with
the distribution of assets beneficially owned by a company and available for
division between its general
creditors"[87].
- The
primary judge in this case followed the decision in Re Independent Contractor
Services (Aust) Pty Ltd (In liq) [No 2] and treated that reasoning as
leading to the conclusion that the trustee's power of exoneration was not the
property of the trustee
company[88].
Carter Holt refined this argument in oral submissions and alleged that a
payment from the proceeds held by the Receivers would
not be a payment "out of
the property coming into his, her or its hands". This was said to be because
although the power of exoneration
is property coming into the Receivers' hands,
a payment from the receivership surplus is a payment from trust assets, which
are not
property of the company held by the Receivers.
- This
submission must be rejected. To reiterate, the "trust assets" are the property
of the company and are held by the Receivers,
although only to the extent to
which Amerind could use them for its own benefit, relevantly by Amerind's power
of indemnity. Further,
the statutory expression "out of the property" cannot
mean that the payment must only be made immediately from the trust rights.
That
would preclude even the conversion of non-monetary trust rights to money and
then payment of the cash. "Out of the property"
must include payments made "by
the use of the property". Hence, if the trustee can use its rights in relation
to the trust assets,
including its power of indemnity, to sell the assets for
the purpose of exoneration, then a payment of a trust creditor directly
from the
trust assets by use of the power of exoneration is a payment made "out of" the
trustee's rights in relation to the trust
assets. A payment by the Receivers of
trust creditors by use of Amerind's power of exoneration must be a payment "out
of the property"
in the Receivers' hands.
Conclusion
- This
appeal was concerned only with two related issues of basic principle. Further
issues may arise that need not be resolved on
this appeal. For instance,
questions might arise about the correct order of priority between trust
creditors after payment of the
priority
debts[89]. Or
questions might arise about the marshalling of claims where a creditor has
access to more than one fund. That question had
been reserved for later
hearing by the primary
judge[90].
- The
fundamental reason why this appeal must be dismissed flows from an appreciation
that s 433 of the Corporations 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. 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.
- Apart
from the underlying conception of the law of trusts that s 433 thus
applies, two further considerations fortify this conclusion. The first is the
obvious fit that the conclusion has with the
underlying purpose of provisions
such as ss 433 and 561. It would be perverse if the Corporations
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. Secondly, as Allsop CJ observed
in Jones v Matrix
Partners Pty Ltd; Re Killarnee Civil & Concrete Contractors Pty Ltd
(In liq)[91],
s 433 was enacted in 2001 as part of the Corporations Act at a time
when the decision in In re Suco Gold Pty Ltd (In liq) had stood for
17 years and "was both well-regarded and followed (though by no
means universally) including in relation to priorities and liquidator's
costs".
- The
appeal must be dismissed with costs.
- BELL,
GAGELER AND NETTLE JJ. This is an appeal from the Court of Appeal of the
Supreme Court of Victoria (Ferguson CJ, Whelan, Kyrou,
McLeish and
Dodds-Streeton JJA). As initially presented, it posed two questions for
decision: (1) whether an insolvent corporate
trustee's right to be indemnified
out of trust assets is "property of the company" within the meaning of
s 433(3) of the Corporations Act 2001 (Cth); and (2) whether such a
right is "property comprised in or subject to a circulating security interest"
for the purpose of s 433(2)(a) by reason of a deed under which credit
facilities were made available to a corporate trustee. For the reasons which
follow, neither
of those questions is dispositive of the appeal. Instead, the
appeal should be dismissed because the trust assets themselves were
property
"coming into [the receivers'] hands" and out of which they were bound to pay
priority "debts or amounts" in accordance with
s 433(3).
The
facts
- Amerind
Pty Ltd (receivers and managers appointed) (in liquidation) ("Amerind") carried
on a business, solely in its capacity as
trustee of the Panel Veneer Processes
Trading Trust ("the Trust"), of manufacturing and distributing decorative and
architectural
finishes. To that end, it maintained a number of credit
facilities and accounts with Bendigo and Adelaide Bank Ltd ("the Bank")
secured
by a range of securities. On 6 March 2014, the Bank sent a notice to Amerind
terminating all facilities and demanding their
repayment, and, on 11 March
2014, the Bank appointed Mathew James Byrnes and Andrew Stewart Reed Hewitt as
receivers and managers
of Amerind ("the receivers") pursuant to the General
Security Deed between the parties ("the Deed"). On 13 August 2014, Amerind's
creditors resolved that the company be wound up in insolvency.
- Following
their appointment, the receivers traded on until they had realised all of the
assets of the Trust, and out of the proceeds
satisfied all Amerind's obligations
to the Bank. After provision for what the receivers considered to be a just
estimate of their
remuneration, the surplus remaining available for distribution
to creditors was some $1,619,018, being the proceeds of realisation
of inventory
("the receivership surplus").
- By
that time, the Commonwealth had advanced accrued wages and entitlements
totalling $3.8 million to Amerind's former employees pursuant
to the Fair
Entitlements Guarantee Scheme. The Commonwealth claimed that it was entitled to
be paid out of the receivership surplus,
pursuant to ss 433(3), 556(1)(e)
and 560 of the Corporations Act, in priority to other
creditors.
The Deed
- Clause 2
of the Deed relevantly provided that:
"2.1 For the purpose of
securing payment of the amount owing, you:
(a) grant a security interest in the personal property to
us; and
(b) charge the other property to us by way of fixed charge.
You do this ... as sole trustee of the trust for all the collateral
comprising the trust fund of the trust ...
2.2 Without limiting clause 2.1, the security interests taken by us under
this security deed extend to all of the collateral being all of your
present and after acquired property."
- Clause 10
of the Deed relevantly provided that:
"10.2 You may not, without our
prior written consent, do, or agree to do, any of the following in respect of
the collateral:
(a) sell, assign or otherwise dispose of the collateral; ...
except for a disposal of inventory in the ordinary course of your
business. ...
10.3 If you dispose of, deal with or part with possession of any interest in
inventory in the ordinary course of business, our security
interest will extend to the proceeds you receive in respect of that
inventory."
- Clause 40
of the Deed relevantly provided that:
"40.1 In this security
deed:
...
amount owing means all amounts that at any time ...:
(a) are payable, are owing but not currently payable, are contingently owing,
or remain unpaid by you to us; ...
...
collateral means the personal property and other
property:
(a) of whatever kind and wherever situated;
(b) whether you are the beneficial owner or hold as trustee of a trust; and
(c) whether you hold it jointly or with one or more other persons (whether in
partnership or not and whether named in the Details or not).
...
other property means all your present and after-acquired rights and
interests in land and any other property, rights and interests that is not
personal property.
...
personal property means all of your present and after-acquired personal
property (as defined in the PPSA and to which the PPSA applies) and all present
and after-acquired personal property (as defined in the PPSA and to which the
PPSA applies) in which you have rights.
PPSA means the Personal Property Securities Act 2009 (Cth) and any
regulations made pursuant to it.
...
proceeds includes proceeds for the purposes of the PPSA but is not
limited to them.
...
security interest:
(a) in relation to any personal property (as defined in the PPSA) has the same
meaning as in the PPSA; and
(b) in relation to any other property means any security for the
payment of money or performance of obligations including a mortgage, charge,
lien, pledge, trust or power.
...
40.2 The following words have the respective meanings given to them in the PPSA:
... inventory ..."
Relevant statutory
provisions
- Section 9
of the Corporations Act relevantly defines "property" as
follows:
"property means any legal or equitable estate
or interest (whether present or future and whether vested or contingent) in real
or personal
property of any description and includes a thing in action ..."
- Section 51
of the Corporations Act provides, so far as is relevant, that:
"PPSA security interest (short for Personal Property
Securities Act security interest) means a security interest within the meaning
of the Personal Property Securities Act 2009 and to which that Act
applies ..."
- Section 51C
of the Corporations Act provides that:
"circulating
security interest means a security interest that is:
(a) a PPSA security interest, if:
(i) the security interest has attached to a circulating asset within the
meaning of the Personal Property Securities Act 2009; and
(ii) the grantor (within the meaning of that Act) has title to the asset; or
(b) a floating charge."
- Section 433
of the Corporations Act provides, so far as is relevant,
that:
"(2) This section applies where:
(a) a receiver is appointed on behalf of the holders of
any debentures of a company ... that are secured by a circulating security
interest ... of any property comprised in or subject to a circulating security
interest; and
(b) at the date of the appointment ... (in this section called the
relevant date):
(i) the company ... has not commenced to be wound
up voluntarily; and
(ii) the company ... has not been ordered to be wound up by the Court.
(3) In the case of a company, the receiver ... taking
possession or assuming control of property of the company must pay, out of the
property coming into his, her or its hands, the following debts or amounts in
priority to any claim for principal or interest in
respect of the
debentures:
(a) first, ...;
(b) next, ...;
(c) subject to subsections (6) and (7), next, any debt or amount that in a
winding up is payable in priority to other unsecured
debts pursuant to
paragraph 556(1)(e), (g) or (h) or section 560.
(4) ...
(5) The receiver ... taking possession or assuming control of property must pay
debts and amounts payable pursuant to paragraph (3)(c)
... in the same
order of priority as is prescribed by Division 6 of Part 5.6 in
respect of those debts and amounts."
- Section 555
of the Corporations Act provides in substance that, subject to
exceptions, all debts and claims proved in a winding up rank equally and, in the
event of
a deficiency of assets, pari passu.
- Section 556(1)(e)
of the Corporations Act, which is in Div 6 of Pt 5.6,
relevantly provides for the payment of "wages, superannuation contributions and
superannuation guarantee charge payable by the company
in respect of services
rendered to the company by employees before the relevant date" in priority to
all other unsecured debts and
claims except classes of claims which do not here
apply.
- Section 10
of the Personal Property Securities Act 2009 (Cth) ("the PPSA") defines
"inventory" as follows:
"inventory means personal
property (whether goods or intangible property) that, in the course or
furtherance, to any degree, of an enterprise
to which an ABN has been allocated:
(a) is held by the person for sale or lease, or has been leased by the person as
lessor; or
(b) is held by the person to be provided under a contract for services, or has
been so provided; or
(c) is held by the person as raw materials or as work in progress; or
(d) is held, used or consumed by the person, as
materials."
- Section 12
of the PPSA provides, so far as is relevant, that:
"(1) A
security interest means an interest in personal property provided
for by a transaction that, in substance, secures payment or performance of an
obligation
(without regard to the form of the transaction or the identity of the
person who has title to the property).
Note: For the application of this Act to interests, see section 8.
(2) For example, a security interest
includes an interest in personal property provided by any of the
following transactions, if the transaction, in substance, secures
payment or
performance of an obligation:
(a) a fixed charge;
(b) a floating charge ..."
- Section 340
of the PPSA defines "circulating asset" to include personal property in respect
of which a security interest has been
granted where "the secured party has given
the grantor express or implied authority for any transfer of the personal
property to
be made, in the ordinary course of the grantor's business, free of
the security interest".
Proceedings
at first instance
- Before
the primary judge (Robson J), the parties were
agreed[92]
that, in order for s 433 of the Corporations Act to apply to the
receivers, two conditions had to be satisfied: that the receivers were in
possession of "property of the company"
within the meaning of s 433(3); and
that that property was subject to a "circulating security interest". The
primary judge
held[93] that
the receivers were not in possession of "property of the company", because the
company "ha[d] no assets of its own with which
to pay the trust creditors", only
a right of indemnity in respect of trust liabilities; and that right was "not
personal property
of the trustee", but rather "held on trust for the trust
creditors". In the alternative, the primary judge
reasoned[94]
that, even if Amerind's right of indemnity were "property of the company" within
the meaning of s 433, it was not comprised in or subject to the
"circulating security interest" created by the Deed, and, therefore, that
s 433 was not engaged. The primary judge thus
rejected[95]
the Commonwealth's claim.
Proceedings in the Court of Appeal
- The
Commonwealth's appeal to the Court of Appeal was successful. The Court of
Appeal held[96]
that Amerind's right to be indemnified out of the assets of the Trust was
"property of the company" and that it necessarily followed
that the provisions
of ss 433, 555 and 556 applied.
- The
Court of Appeal further
held[97] in
effect that, because the Deed created a circulating security interest in the
proceeds of realisation of the inventory, it was
unnecessary to decide whether
the Deed created a circulating security interest in the company's right of
indemnity. It was enough
that s 433(3) operated according to its terms to
require the receivers to pay out of the proceeds of realisation of the inventory
(being property
of Amerind the subject of a circulating security interest and of
which the receiver had taken possession or assumed control) the
claims provided
for in s 556(1)(e), (g) and (h), in priority to any claim for principal or
interest.
- The
Court of Appeal
added[98] that,
because all of Amerind's creditors were trust creditors, it was unnecessary to
decide whether the proceeds of realisation were
distributable among creditors
generally, as was held in Re Enhill Pty
Ltd[99], or
only as between trust creditors, as was held in In re Suco Gold Pty Ltd
(In liq)[100],
but that, until and unless the issue was authoritatively determined, trial
judges in Victoria should continue to follow Re
Enhill.
The right of indemnity
- A
corporate trustee's right to be indemnified out of the assets of the trust
confers "property" for the purposes of the Corporations Act. As was
stated[101]
by the plurality in Octavo Investments Pty Ltd v Knight, although a
trustee who enters into business transactions as trustee is personally liable
for debts incurred in the course of those
transactions, the trustee is entitled
to be indemnified (whether by recoupment or exoneration) out of the trust assets
against such
liabilities, and thus enjoys a beneficial interest in those assets.
The corollary, as was
stated[102]
unanimously in Chief Commissioner of Stamp Duties (NSW) v Buckle, is that
the trustee does not hold the trust assets solely for the benefit of the
beneficiaries to the extent of that right of indemnity.
- The
idea of a trustee's right of indemnity conferring a beneficial interest in the
trust assets has been criticised. Professor Ford,
for example,
argued[103]
that a trustee's right of exoneration, being limited to the discharge of trust
liabilities, should properly be characterised as conferring
a personal power,
not property within the meaning of s 5(1) of the Bankruptcy Act 1966
(Cth). But criticism of that kind is misplaced. It is apt to distract
attention from the practical relationship between the trustee's
equitable right
of indemnity and legal powers of ownership.
- As
has been understood at least since Maitland's explication of the
trust[104], a
trustee as legal owner of the trust assets has all the powers incidental to
ownership subject only to the power of the beneficiaries
to compel the trustee
to exercise the trustee's powers in accordance with the terms of
trust[105].
Inasmuch as a court of equity will aid the beneficiaries in the enforcement of
the terms of trust, the beneficiaries are described,
especially in revenue
contexts, as having a beneficial interest in, or occasionally even beneficial
ownership of, the trust
assets[106].
The beneficiaries' interest is not, however, to be conceived of as cut out of
the trustee's legal estate but rather as engrafted
onto it as a restriction on
the manner in which the trustee may deal with trust
assets[107].
- The
trustee also has a right to be indemnified out of the trust assets in respect of
liabilities properly incurred in the execution
of the trust, which takes
priority over the beneficiaries' claim on the trust
assets[108].
Until that right has been satisfied, the beneficiaries cannot compel the trustee
to exercise the trustee's powers as legal owner
of the trust assets for their
benefit[109].
A court of equity will assist the trustee to realise trust assets to satisfy the
trustee's right of indemnity, in priority to the
beneficiaries'
interests[110],
and thus it is said that the trustee has an equitable charge or lien over the
trust
assets[111].
It is not, however, a charge or lien comparable to a synallagmatic security
interest over property of another. It arises endogenously
as an incident of the
office of trustee in respect of the trust
assets[112].
- Possibly,
the trustee's right of indemnity could be as well described as conferring a
personal power (as Professor Ford argued it
should be) as a proprietary
interest. But the choice of description should conform to, rather than dictate,
the application of fundamental
principles to "solving a concrete legal
problem"[113].
The trustee's right to apply trust assets in satisfaction of trust liabilities
is proprietary in that it may be exercised in priority
to the beneficial
interests of the
beneficiaries[114].
To describe it as constituting a beneficial interest in the trust assets, and so
as property, thus acknowledges the characteristic
blending of personal rights
and obligations with proprietary interests which is the "genius" of the trust
institution[115].
Such a beneficial interest falls naturally and ordinarily within the definition
of "property" in s 9 of the Corporations
Act.
Property of the company
- In
several of the
authorities[116],
and thus in the proceedings
below[117],
the property of a trustee available for the payment of creditors in the event of
insolvency is described as being the right of indemnity.
That is so in the
sense that the trustee's right of indemnity confers a beneficial interest in the
trust assets. As this case demonstrates,
however, it is necessary to keep in
mind that the property constituted of the right of indemnity as such and the
property constituted
of the trust assets themselves are separate and distinct,
albeit that the former confers a proprietary interest in the latter. Failure
to
bear that in mind is liable to result in the misconception at which the primary
judge arrived, and which was perpetuated in the
appellant's submissions before
this Court, that, because Amerind's right of indemnity as such was not property
that was subject to
a circulating security interest, s 433 did not
apply.
- In
s 433(3) of the Corporations Act, the property of which the receiver
takes possession or assumes control and out of which the receiver is required to
pay the specified
liabilities is the "property comprised in or subject to [the]
circulating security interest", granted by a company, pursuant to which
the
receiver is appointed. Amerind's right of indemnity was not "property [of the
company] comprised in or subject to a circulating
security interest" granted by
Amerind. In the absence of any suggestion that the Bank gave Amerind express or
implied authority
to transfer Amerind's right of indemnity in the ordinary
course of business, it was not a "circulating asset" within the meaning
of
s 340 of the PPSA and thus any security over it was not a "circulating
security interest" as defined in s 51C of the Corporations Act. The
property "coming into [the receivers'] hands", and out of which they were to pay
the priority "debts or amounts", did not include
the right of indemnity itself.
Nor was it the case, as the Court of Appeal reasoned might be
possible[118],
that the character of the trust assets automatically flowed through to the right
of indemnity and so brought the right of indemnity
within the reach of
s 433. It was the inventory itself which was the circulating asset the
subject of a circulating security interest (created by cl 2.1 of
the Deed),
pursuant to which the receivers were appointed, which attracted the operation of
s 433.
- Certainly,
as the primary judge found in effect, Amerind held the inventory on trust in
accordance with the terms of the trust deed,
but, contrary to the primary
judge's reasoning, that did not mean that it could not be "property of the
company" for the purposes
of
s 433[119].
As legal owner of the inventory, with power under the trust deed to encumber the
inventory in favour of the Bank as security for
the company's borrowings,
Amerind was empowered to, and did, subject the inventory to a circulating
security interest in favour of
the Bank. Upon Amerind's default under the Deed,
the receivers were empowered to, and did, take possession or assume control of
the inventory pursuant to that circulating security interest. And Amerind had
at that time a right of indemnity out of the whole
of the inventory of which the
receivers took possession or assumed control.
Amounts payable in
a winding up
- In
Stein v Saywell, Barwick CJ
posited[120]
that the policy behind s 196 and s 292(4) of the Companies Act
1961 (NSW) (legislative forerunners of s 433 and s 556 of the
Corporations Act) was that a creditor who accepts a floating charge of a
company's business assets and allows the company to be carried on and the
assets
the subject of the floating charge to be altered and possibly augmented by the
efforts of the company and its employees will
not be permitted to displace the
priorities which the legislation accords to certain debts which accrue during
the carrying on of
the business: amongst them, the remuneration of employees.
The same is true under s 433. Its purpose is to enjoin a receiver
appointed by the holder of a circulating security interest to observe the order
of priorities
which applies to preferential creditors in the event of a winding
up. It requires a receiver who has taken possession or assumed
control of
property the subject of a circulating security interest to pay out of that
property any debt or amount that, in the event
of the company being wound up,
would be payable out of the proceeds of realisation of that property pursuant to
s 556(1)(e), (g) or (h). In this case, s 433 applied, according to
its terms, to require the receivers to pay out of the proceeds of realisation of
the inventory so much of the
debts identified in s 556(1)(e) as would, in
the event of a winding up, be payable out of those proceeds in discharge of
trust liabilities.
- Identification
of the amounts that would be payable pursuant to s 556(1)(e) in the event
of a winding up is informed by the legislative context in which s 556(1)(e)
appears, and in particular the close juxtaposition of s 556(1)(e) to both
s 555 (which provides in part that if the "property of the company" is
insufficient to meet claims they must be paid proportionately) and
s 561
(which provides that, in a winding up, so far as "the property of a company
available for payment of creditors" is insufficient to
meet the payment of any
debt referred to in s 556(1)(e), (g) or (h), such a debt must be paid in
priority over the claims of a secured party in relation to a circulating
security interest
created by the company and may be made accordingly out of any
property comprised in or subject to the circulating security interest).
- In
the winding up of a corporate trustee, the "property of the company" that is
available for the payment of creditors includes so
much of the trust assets as
the company is entitled, in exercise of the company's right of indemnity as
trustee, to apply in satisfaction
of the claims of trust creditors. Thus, in
this case, where the liabilities identified in s 556(1)(e) were trust
liabilities, the "property of the company" that would have been available for
the payment of creditors in the event of
a winding up would have been so much of
the trust assets as would be sufficient to pay or satisfy the claims of trust
creditors.
Because the trust assets were inventory, rather than money or an
equivalent, and there was a deficiency, the whole of the receivership
surplus
was to be applied to priority "debts" and "amounts".
Re
Enhill or Re Suco Gold?
- A
significant part of the primary judge's reasons, and a substantial part of the
Court of Appeal's reasons, was directed to the question
of whether an insolvent
corporate trustee's right to be indemnified out of trust assets against trust
liabilities constitutes property
of the company that may be applied only in
payment of trust creditor liabilities (as was
held[121] in
Re Suco Gold) or is property of the company available for distribution
among creditors generally (as was
held[122] in
Re Enhill). Consistently with the preponderance of authority that
favours[123]
the correctness of Re Suco Gold, the primary judge
held[124]
that a trustee's right of exoneration in respect of trust liabilities may be
applied only in satisfaction of the trust liabilities
to which the right of
exoneration relates. In contrast, the Court of Appeal in effect
adhered[125]
to the decision of the Full Court of the Supreme Court of Victoria in Re
Enhill that the proceeds of the trustee's right of indemnity are property of
the company available for distribution among all creditors
according to the
order of priority established by ss 555, 556 and 560.
- The
primary judge was correct that the proceeds from an exercise of a corporate
trustee's right of exoneration in respect of trust
liabilities may be applied
only in satisfaction of the trust liabilities to which that right relates. As
was
concluded[126]
by King CJ in Re Suco Gold, and has since been
affirmed[127]
by the Full Court of the Federal Court of Australia in Jones v Matrix
Partners Pty Ltd; Re Killarnee Civil & Concrete Contractors Pty Ltd
(In liq):
"the right of indemnity can only produce proceeds
for division among the creditors generally if the trustee has discharged the
liabilities
incurred in the performance of the trust and is therefore entitled
to recoup himself out of the trust property. If he has not discharged
the
liabilities, the right of indemnity entitles him to resort to the trust property
only for the purpose of discharging those liabilities.
He may apply the trust
moneys directly to the payment of the trust creditors or he may take it into his
own possession for that
purpose. If he takes trust property into his
possession to satisfy his right to be indemnified in respect of unpaid trust
liabilities, ...
that property retains its character as trust property and may
be used only for the purpose of discharging the liabilities incurred
in the
performance of the trust. The exercise of the right of indemnity is for the
benefit of the trustee in that it relieves him of liability for the trust debts.
If the trustee is bankrupt, or being a company is in liquidation, the trustee in
bankruptcy or liquidator can exercise the right
of indemnity which vests in him
as part of the property of the bankrupt or insolvent company. If the trust
liabilities have been
discharged, the trustee in bankruptcy or liquidator is
entitled to recoup the bankrupt estate out of the trust property and the
proceeds
of the right of indemnity become part of the property divisible among
the creditors. If the liabilities have not been discharged,
the trustee in
bankruptcy or liquidator may, by reason of the right of indemnity which vests in
him, apply the trust property to the
payment of the trust liabilities,
thereby exonerating the bankrupt estate to the extent of the value of the
available trust assets. In the latter circumstances there
cannot be proceeds of
the right of indemnity which are available for distribution among the general
body of creditors." (emphasis
added)
- The
primary judge was not correct, however, in holding that it followed that the
statutory order of priority for the payment of debts
was inapplicable. It is
true, as his Honour
observed[128],
that there is authority to the effect that the proceeds of an insolvent
corporate trustee's right of indemnity should be distributed
among trust
creditors pari
passu[129],
either by an application of "the general principle of equity that requires a
distribution of company property in winding-up to proceed
upon a footing of
equality amongst all the creditors of equal
degree"[130]
or by analogy with "cases of competing claims by beneficiaries of different
trusts to trace into a mixed
fund"[131].
But so to reason by reference to general precepts of equity wrongly presupposes
that s 556 and its precursors cannot apply in terms to the proceeds of
realisation of a trustee's right of indemnity because such provisions
are
"addressed only to distribution of assets beneficially owned by the company and
available for division between general
creditors"[132].
In this respect, the oft-stated maxim that bankruptcy legislation has no
application to trust assets has the capacity to mislead.
- From
the outset, courts of equity
construed[133]
the earliest bankruptcy statutes according to a presumption that assignees in
bankruptcy, who were considered as volunteers, took
subject to equities. To
avoid circuity of action, courts of law went further, by
holding[134]
that property the subject of a trust or assignment would not pass at all –
unless the bankrupt had even "the most remote possibility
of interest" in the
property[135].
Consistently with this history, the reference to property "held by the bankrupt
in trust" in successors to s 15(1) of the Bankruptcy Act 1869 (32
& 33 Vict c 71), such as s 116(2) of the Bankruptcy Act
1966, is understood to mean held on trust solely for another
person[136].
Accordingly, where a trustee in bankruptcy or other administrator assumes
control of the property of a bankrupt, the trustee in
bankruptcy or assignee
takes the bankrupt's property subject to equities, but otherwise as property
divisible amongst
creditors[137].
That allows for the payment of creditors out of property held on trust to the
extent that the bankrupt has a beneficial interest
in the trust assets, and thus
to the extent of the bankrupt's right of indemnity.
- The
position under the Corporations Act is comparable. The liquidator of a
company assumes control of the company's assets subject to
equities[138],
and, accordingly, must deal with assets held by the company as trustee in
accordance with the terms of trust. But to the extent
that the company has a
beneficial interest in the trust assets, as it has by reason of the company's
right of indemnity in respect
of properly incurred trust obligations, the trust
assets are property of the company available for the payment of creditors. In
Re Suco Gold, King CJ
articulated[139]
the point thus:
"The liquidator is bound by the provisions of s 292 [of the Companies
Act, now s 556 of the Corporations Act] with respect to the
payment of the company's debts. He must therefore endeavour to pay the debts in
accordance with the order of
priority set out in that section. To the extent
that each priority debt has been incurred in the performance of a particular
trust
he should have recourse to the property of that trust for the purpose of
paying it. If there is a residue of assets of a particular
trust after payment
of the priority debts incurred in the performance of that trust, that residue
should be applied to the payment
of the other debts applicable to that trust.
If there is a deficiency in the assets of a particular trust, the non-priority
debts
applicable to that trust would have to rank pari passu. The unpaid
balance would, of course, rank for dividend out of the general assets of the
company".
- As
Allsop CJ recently
observed[140]
in effect in Jones v Matrix, there is therefore no reason in principle or
by reference to text or context why the statutory order of priorities should not
be
followed in the distribution of the proceeds of the trustee's right of
indemnity among trust creditors. Nor, given the wide-spread
use of companies as
trustees of business trusts in Australia, and Parliament's re-enactment of
s 292 of the Companies Act in effect as s 556 of the
Corporations Act against the background of the decision in Re Suco
Gold and its general acceptance, is there any reason to suppose that it is
not what Parliament intended. Section 556 should be understood as
applicable to such corporations and their property of all kinds.
- Complications
may arise in cases where a corporate trustee has carried on business as trustee
of more than one trust or as trustee
of a trust and on its own account. But the
solution
proposed[141]
by King CJ – of construing s 556 in such circumstances as if the
liquidator of the corporate trustee held separate funds, each for a different
group of creditors
– coheres to the law of trusts and has common sense to
commend it. It may not provide the whole of the answer where, for example,
expenses, such as the wages and salaries of employees, have been incurred by a
company partially on one account and partially on
another. But as experience
shows, situations of that kind are not
insuperable[142].
As Allsop CJ concluded in Jones v
Matrix[143],
they fall to be resolved by the application of principle to the text of the
legislation in the particular circumstances of each
case.
Conclusion
- It
should be understood that Amerind's right of indemnity as such was not "property
comprised in or subject to a circulating security
interest". It could not be
so, because it was not a "circulating asset" within the meaning of s 340 of
the PPSA and thus any security over it was not a "circulating security interest"
as defined in s 51C of the Corporations Act, there being no suggestion
that the Bank gave Amerind express or implied authority to transfer the right of
indemnity in the ordinary
course of business. The inventory itself, however,
was property of the company, being property "comprised in or subject to a
circulating
security interest" created by Amerind in favour of the Bank. To the
extent of Amerind's right of indemnity, that property would
have yielded
proceeds of realisation from which Amerind would have been entitled to discharge
properly incurred trust liabilities.
The inventory was property of Amerind of
which the receivers took possession or assumed control pursuant to the
circulating security
interest which Amerind created over the inventory in favour
of the Bank. That property yielded proceeds of realisation from which
the
receivers were, as Amerind would have been, entitled to discharge properly
incurred trust liabilities. And in the event of a
winding up, those proceeds
would have been property of Amerind available for the payment of creditors in
accordance with s 556(1)(e) of the Corporations Act. That is why
s 433 applied.
- For
these reasons, the appeal should be dismissed with costs.
- GORDON
J. Amerind Pty Ltd (receivers and managers appointed) (in liquidation)
("Amerind") carried on a business solely in its capacity
as trustee of the Panel
Veneer Processes Trading Trust ("the trust"). As is not uncommon, Amerind had
no assets of its own, other
than perhaps a nominal sum settled to establish the
trust, and a right in equity to be indemnified (a right of
exoneration as opposed to a right of recoupment) from the trust assets in
respect of liabilities incurred in the conduct of the trust.
- Amerind
had facilities with the Bendigo and Adelaide Bank ("the bank") secured against
both fixed and circulating trust assets.
On 11 March 2014, following a
notice from the bank demanding repayment and terminating the facilities,
Amerind's director appointed
joint and several administrators to Amerind.
On the same day, the bank appointed the second respondents as receivers and
managers
("the receivers")[144].
The receivers, exercising Amerind's right of exoneration, sold the fixed
and circulating assets. After paying out the bank from
the sale of fixed
assets, and providing for their own estimated remuneration, the receivers
held a net surplus of $1,619,018 ("the
receivership surplus"). That
surplus comprised, in part, proceeds from the sale of the circulating assets.
- Determination
of the issues in this appeal concerns the application of specific statutory
provisions: in particular, how, if at
all, s 433 of the Corporations
Act 2001 (Cth), which prescribes a priority payments regime, interacts with
the receivership surplus to the extent that it comprised circulating
assets.
- Section
433 is headed "[p]roperty subject to circulating security interest
– payment of certain debts to have priority" (emphasis added). Section
433 relevantly applies to "property of the
company"[145]
over which a receiver takes possession or assumes control, and requires that
employees' claims (and the Commonwealth's claims, by
operation of
s 560 of the Corporations Act, where it has paid out the employees'
claims) have priority in the distribution of "property of the company" to which
the section
applies[146].
Employees of Amerind had their entitlements partially paid out by the
Commonwealth. Thus, the Commonwealth submitted that s 433
applied to the receivership surplus as "property of [Amerind]" within the
meaning of s 433(3), and that it had statutory priority to that
surplus.
- The appellant,
a trade creditor, submitted that s 433 of the Corporations Act did
not apply to the receivership surplus on two grounds. First, the appellant
noted that, as is uncontroversial, the receivers could
only access the
receivership surplus through the exercise of Amerind's right of exoneration.
That is, there was no free-standing
right to the receivership surplus,
which comprised the proceeds from the sale of the trust assets, separate from
the right of exoneration.
On this basis, the appellant submitted that the
receivership surplus represented "trust property" and not "property of
[Amerind]"
to which s 433 applied.
- Second,
the appellant submitted that the receivership surplus fell outside the scope of
s 433 because, among other things, s 433 only deals with circulating
assets[147]
and the trustee's right of exoneration (the means through which the receivers
could access the assets) was a fixed asset, rather
than a circulating asset.
- Both
grounds should be rejected. I agree with what Bell, Gageler and Nettle JJ
have written. I write separately to explain my reasons
why, at a level of
principle and practice, the appeal should be dismissed with costs.
- In
relation to the first ground, once the nature of the right of exoneration is
properly understood, and regard had to the broad
definition of "property" in the
Corporations Act, Amerind's interest in the receivership surplus
generated by its right of exoneration out of those assets was "property of
[Amerind]"
within the meaning of s 433.
- In
relation to the second ground, it was not in dispute that the receivers had been
appointed by the bank under debentures that were
secured, at least in part, by a
circulating security interest as required by s 433(2)(a). At issue
was the interaction of the right of exoneration (a fixed asset) with
s 433(3) of the Corporations Act. Did the fact that a fixed asset
– the right of exoneration – was the gateway to the sale of
circulating assets preclude
the application of s 433(3) to the circulating
assets? The answer is "no". The only concern of s 433(3) is that in
the distribution of circulating assets, certain claims are to have priority over
other claims. To the extent that the
receivership surplus represented the
proceeds of the sale of circulating assets, s 433(3) applied to the
receivership surplus. It is not right to say, and I do not accept, that the
right of exoneration is itself a circulating
asset.
- It
is convenient to deal with the appellant's two grounds separately. Before doing
so, it is necessary to consider the relevant
legislative provisions.
The Corporations Act
- Employees
have had priority over claims secured by a floating charge, now referred to as a
circulating security interest, for more
than a
century[148].
Granting employees priority over claims secured by a circulating security
interest, as opposed to property secured by a fixed charge,
has been criticised
but no substantial change has been made.
- The
Corporations Act provides for employees' claims to have priority over the
claims of secured creditors in relation to property secured by a circulating
security interest both where a receiver is appointed to that property, and where
a company is in
liquidation[149].
Although this appeal is concerned with the appointment of a receiver to such
property, the conclusions apply with equal force to
a liquidator dealing with
that
property[150],
and will be relevant to other cases in which the statutory order of priority
fixed by the Corporations Act intersects with assets realised through an
insolvent corporate trustee's right of
exoneration[151].
For this reason, the questions raised in this appeal are significant.
It is therefore necessary to set out the legislative provisions
that
mandate priority of employees' claims in respect of circulating security
interests in relation to both receivers and liquidators.
- In
relation to receivers, the key legislative provision is s 433 of the
Corporations Act, which requires that a receiver pay out of the
"property of the company" certain debts or amounts in priority to any claim
for principal or interest in respect of the debentures secured by a
circulating security interest. There are relevantly two interlocking provisions
– s 433(2) and (3).
- Section
433(2) provides that the section applies
where:
"(a) a receiver is appointed on behalf of the holders of any debentures of a
company or registered body that are secured by a circulating security
interest, or possession is taken or control is assumed, by or on behalf of
the holders of any debentures of a company or registered body,
of any property
comprised in or subject to a circulating security interest; and
(b) at the date of the appointment or of the taking of possession or assumption
of control (in this section called the relevant date):
(i) the company or registered body has not commenced to be wound up voluntarily;
and
(ii) the company or registered body has not been ordered to be wound up by the
Court." (emphasis added)
- As
is apparent, s 433(2) must be satisfied before the balance of the section
is engaged. And in this appeal there was no dispute that the receivers had been
appointed by the bank under debentures that were secured, at least in part, by a
circulating security interest, as required by
s 433(2)(a)[152].
- When
s 433(2) is satisfied, then s 433(3) provides
that:
"In the case of a company, the receiver or other person taking
possession or assuming control of property of the company must pay, out of the
property coming into his, her or its hands,
the following debts or amounts in
priority to any claim for principal or interest in respect of the
debentures:
(a) first, any amount that in a winding up is payable in priority to unsecured
debts pursuant to section 562;
(b) next, if an auditor of the company had applied to ASIC under subsection
329(6) for consent to his, her or its resignation as auditor and ASIC had
refused that consent before the relevant date − the reasonable
fees
and expenses of the auditor incurred during the period beginning on the day of
the refusal and ending on the relevant date;
(c) subject to subsections (6) and (7), next, any debt or amount that in
a winding up is payable in priority to other unsecured debts pursuant to
paragraph 556(1)(e), (g)
or (h) or section 560." (emphasis
added)
- In
short, where s 433(2) has been satisfied, s 433(3) is enlivened if
the receiver takes possession of property of the company. The word
"property" is relevantly defined in s 9 of the Corporations Act to
mean:
"any legal or equitable estate or interest (whether present or future and
whether vested or contingent) in real or personal property
of any description
and includes a thing in action ..."
- That
definition is wide. Where a receiver takes possession of property of the
company, the receiver must pay out of the property
coming into his, her or its
hands certain debts or amounts in priority to any claim for principal or
interest in respect of the debentures. The reference to "the
debentures" in s 433(3) is not unimportant; they are the same debentures
referred to in s 433(2) and provide the basis for the application of the
section. Moreover, the debentures are debentures of a company that are
secured by a circulating security interest. Section 433(3) is concerned
with the distribution of circulating assets, not any other property of the
company, and requires payment of three categories
of claims in priority to all
other claims when distributing those circulating assets.
- This
appeal is concerned with the third priority category, that in
s 433(3)(c), which concerns employee entitlements and directs
attention to s 556(1)(e), (g) or (h) of the Corporations Act.
Those provisions of s 556 provide:
"(1) Subject to this Division, in the winding up of a company the following
debts and claims must be paid in priority to all other
unsecured debts and
claims:
...
(e) subject to subsection (1A) − next:
(i) wages, superannuation contributions and superannuation guarantee charge
payable by the company in respect of services rendered
to the company by
employees before the relevant date; or
(ii) liabilities to pay the amounts of estimates under Division 268 in Schedule
1 to the Taxation Administration Act 1953 of superannuation
guarantee charge mentioned in subparagraph (i);
...
(g) subject to subsection (1B) − next, all amounts due:
(i) on or before the relevant date; and
(ii) because of an industrial instrument; and
(iii) to, or in respect of, employees of the company; and
(iv) in respect of leave of absence;
(h) subject to subsection (1C) − next, retrenchment payments payable to
employees of the company."
- Section
560 of the Corporations Act, also referred to in
s 433(3)(c), grants the Commonwealth the same rights to
priority in a winding up as the employees would have had, as follows:
"If:
(a) a payment has been made by a company:
(i) on account of wages; or
(ii) on account of superannuation contributions (within the meaning of section
556); or
(iii) in respect of leave of absence, or termination of employment, under an
industrial instrument; and
(b) the payment was made as a result of an advance of money by a person (whether
before, on or after the relevant date) for the purpose
of making the
payment;
then:
(c) the person by whom the money was advanced has the same rights under this
Chapter as a creditor of the company; and
(d) subject to paragraph (e), the person by whom the money was advanced has,
in the winding up of the company, the same right of priority of payment in
respect
of the money so advanced and paid as the person who received the payment
would have had if the payment had not been made; and
(e) the right of priority conferred by paragraph (d) is not to exceed the amount
by which the sum in respect of which the person
who received the payment would
have been entitled to priority in the winding up has been diminished by reason
of the payment." (emphasis
added)
- A parallel
scheme applies in respect of liquidators by s 561(a) of the Corporations
Act. That section provides for employee priority over claims of a secured
party in relation to a circulating security interest, as
follows:
"So far as the property of a company available for payment of creditors
other than secured creditors is insufficient to meet payment of:
(a) any debt referred to in paragraph 556(1)(e), (g) or (h) [being the employee
entitlements set out above]; ...
payment of that debt or amount must be made in priority over the claims of a
secured party in relation to a circulating security interest
created by the
company and may be made accordingly out of any property comprised in or subject
to the circulating security interest." (emphasis
added)
- The
intended effect of ss 433(3)(c) and 561(a) is that where a company is in
receivership or in liquidation, employees' claims will enjoy priority over the
claim of a party
secured by a circulating security interest, and will be paid
out of the property comprised in or subject to the circulating security
interest
in priority to the secured creditor. The intention of ss 433(3)(c) and
561(a) is to ensure that, as has been the case historically, employees rank
before creditors secured by a circulating security interest
in relation to
property subject to the circulating security interest, whether a company is in
receivership, or is being wound up.
First ground: whether
Amerind's right of exoneration, and proceeds from the exercise of that right,
are "property of the company"
within the meaning of s 433
- The
question raised by this appeal ground is whether the fact that Amerind operated
as trustee of a trading trust, and could only
access trust assets through its
right of exoneration, took those assets (the receivership surplus) outside the
scope of "property
of the company" for the purposes of s 433. Put a
different way, if Amerind had been conducting the business in its own
right, Amerind's employees would be priority creditors
under
s 433(3)(c). Is the position different because Amerind conducted
the business as a trustee and had a right of indemnity out of the assets of the
trust to pay the employees?
- The
question arises in the following way. The receivers, who were appointed by
the bank, discharged the bank's secured debt out
of Amerind's fixed assets.
What remained was, relevantly, "circulating assets" over which the bank was also
secured (holding a "circulating
security interest" within the meaning of
s 433), namely the receivership surplus. Because the bank's debt had
already been discharged out of Amerind's fixed assets, there was no
need to
prioritise the employees' claims over the claim for principal or interest made
by the bank in respect of its debt. The question
remained, however, whether
s 433(3) operated on the receivership surplus such that the employees'
claims took priority in respect of the receivership surplus over the
claims of
other creditors. Here, the appellant claimed to be a secured
creditor, ranking behind the bank. Did the receivers have
to pay the priority
creditors specified in s 433(3) out of the relevant part of the
receivership surplus before the appellant?
- In
relation to the first ground, the appellant and the Commonwealth each focused on
the nature of the trustee's right of exoneration. They were right
to do so. Its interaction with s 433 of the Corporations Act is key
to the resolution of this appeal ground.
- The
appellant contended that s 433(3) did not mandate the payment of priority
creditors out of the receivership surplus. This was because, the appellant
argued, the exoneration
arm of a trustee's right of indemnity,
properly understood, was "no more than a right to have trust assets
applied to meet trust
debts" and "confers upon the trustee no interest in the
trust assets themselves, or the proceeds thereof". The appellant further
contended that what came into the receivers' hands when they were appointed to
Amerind – the relevant "property of the company"
within the meaning
of s 433(3) – was the power to apply the receivership
surplus to meet trust debts (in other words, a right of exoneration),
rather than any proprietary interest in the receivership surplus. The
appellant argued that the trustee's right or power to apply the trust fund
pursuant to its right of exoneration, and the trustee's
corresponding interest
in the fund, could and should be separated. It followed that the receivership
surplus, according to the appellant,
was not "property of [Amerind]" within the
meaning of s 433(3); Amerind's only "property" was its right of
exoneration. That is, Amerind had no "property" in the receivership surplus and
thus
the receivership surplus fell outside the scope of s 433(3).
- The
Commonwealth argued that Amerind had a proprietary interest in the receivership
surplus, and that s 433 applied to Amerind's proprietary interest in the
receivership surplus as "property of the company". By implication,
this argument
meant that ss 556 and 561 would have applied to
Amerind's proprietary interest in the receivership surplus, had the question
been posed by the liquidator of
Amerind.
- These
reasons will show that the Commonwealth's argument should be accepted.
Trustee's right of indemnity – principles
- In
order to show why the Commonwealth's argument should be accepted, it is
necessary to first consider the origins and nature of
the trustee's right of
exoneration by reference to some basic principles.
- A
trust has no legal personality, subject, of course, to statute. It is an
institution developed and recognised by equity. It is
an equitable
obligation binding on the trustee to deal with property for the benefit of the
beneficiaries (or, in limited circumstances,
a particular purpose or
purposes)[153].
The trustee is personally liable for debts or liabilities incurred in the course
of transactions concerning the
trust[154].
The liability of a trustee remains "emphatically personal", rather than
being confined by the office of
trustee[155].
That liability arises in accordance with ordinary principles of
law[156].
- Where
a trustee acting within its powers incurs a debt in the course of the
administration of the trust, although the trustee is
ordinarily personally
liable in relation to the debt, it is entitled to indemnity out of the trust
estate. If the trustee has discharged
the liability out of its individual
property, it is entitled to reimbursement; if it has not discharged the
liability, it is entitled
to apply the trust property in discharging it.
That is, the trustee is entitled to
exoneration[157].
This appeal is only concerned with the right of exoneration.
- The
sources of the trustee's indemnity (whether in the form of exoneration or
recoupment) are threefold: equity, the terms of the
trust instrument and
statute[158].
In relation to the first source, even before
statute[159]
empowered a trustee to be reimbursed out of trust property for expenses properly
incurred, equity implied into every trust deed the
same
right[160].
In relation to the other sources, all States and Territories have legislatively
provided for a trustee's reimbursement and
exoneration[161].
- The
trustee has an equitable charge or lien on trust property, which gives the
trustee a right to retain trust property until the
right of indemnity is
satisfied and, if necessary, to sell that
property[162].
The scope of the trustee's indemnity (whether exoneration or recoupment) is
confined to expenses which are "properly" or "reasonably"
incurred[163].
In equity, there is no direct access by the creditors to the assets of the
trust. However, creditors may be subrogated to the rights
of the trustee
against the trust
assets[164].
- Allsop
CJ, in Jones v Matrix Partners Pty Ltd; Re Killarnee Civil & Concrete
Contractors Pty Ltd
(In liq)[165],
addressed the right of indemnity in the form of exoneration. Allsop CJ's
description was rightly accepted by the appellant. His
Honour confirmed that
the right of exoneration generates a proprietary interest on the part of the
trustee in the trust fund as
follows[166]:
"[T]he right (in a sense personal in that it was distinct from and superior to
the interests of cestuis que trust) of the trustee
to use trust assets to
exonerate itself arises to meet a trust liability, and can be exercised only for
that purpose. The property in the hands of the trustee remains trust
property, but subject to the trustee's proprietary interest that exists for
the
purpose of paying the creditors. The property is not held on trust for the
beneficiaries alone; the proprietary interest of
the trustee is preferential to
the interests of the beneficiaries, but that interest of the trustee is shaped
by its purpose and
origins in the trust relationship – to pay trust
creditors in order to exonerate itself from those debts. The character and
limits of the interest are shaped by its purpose and origins. The obligation of
the trustee to use the trust assets
to pay trust creditors is reflected by, and
provides the foundation for, the creditors' right of subrogation." (emphasis
added)
- The
principle that the right of exoneration generates an equitable interest in the
trust fund that is proprietary in nature was subsequently
restated by
Allsop CJ in the same decision as
follows[167]:
"Thus, in one sense, what exists can be seen to be an equitable proprietary
interest or charge or lien in or over trust assets; but any enforcement by
a
Court of Equity is not of a security interest or a right created over the
interests of the beneficiaries, but rather the enforcement
by a Court of Equity
of a prior proprietary interest in the trust fund to support the right of
indemnity". (emphasis added)
- The
approach of Allsop CJ to the right of exoneration, and, in particular, his
explanation that the right of exoneration generates
a proprietary interest in
the trust fund, was consistent with a number of decisions of this Court.
- First,
Octavo Investments Pty Ltd v
Knight[168]
established that a trustee's right of indemnity against trust property, whether
for exoneration or recoupment, for liabilities properly
incurred in the
performance of the trust, confers on the trustee a proprietary interest in
the trust property.
- Second,
that principle was affirmed in Chief Commissioner of Stamp Duties (NSW) v
Buckle[169],
where the Court held that the trustee's right of indemnity (whether in the form
of exoneration or recoupment) confers on the trustee
a beneficial proprietary
interest in the trust assets and that that interest takes priority over the
interests of beneficiaries. There the Court
said[170]:
"Until the right to reimbursement or exoneration has been satisfied, 'it is
impossible to say what the trust fund is'. The entitlement
of the beneficiaries
in respect of the assets held by the trustee which constitutes the 'property' to
which the beneficiaries are
entitled in equity is to be distinguished from the
assets themselves. The entitlement of the beneficiaries is confined to so
much
of those assets as is available after the liabilities in question have been
discharged or provision has been made for them. To the
extent that the assets
held by the trustee are subject to their application to reimburse or exonerate
the trustee, they are not 'trust
assets' or 'trust property' in the sense that
they are held solely upon trusts imposing fiduciary duties which bind the
trustee in
favour of the beneficiaries.
The entitlement to reimbursement and exoneration was identified by Lindley LJ
as 'the price paid by cestuis que trust for the gratuitous
and onerous services
of trustees'. The right of the trustee has been described as a first charge
upon the assets vested in the trustee,
as one upon the 'trust assets', and as
conferring upon the trustee an 'interest in the trust property [which] amounts
to a proprietary
interest'.
However, the starting point in the class of case under consideration is that
the assets held by the trustee are 'no longer property
held solely in the
interests of the beneficiaries of the trust'. The term 'trust assets' may be
used to identify those held by the
trustee upon the terms of the trust, but, in
respect of such assets, there exist the respective proprietary rights, in order
of priority,
of the trustee and the beneficiaries. The interests of the
beneficiaries are not 'encumbered' by the trustee's right of exoneration
or
reimbursement. Rather, the trustee's right to exoneration or recoupment 'takes
priority over the rights in or in reference to
the assets of beneficiaries or
others who stand in that situation'. A court of equity may authorise the sale
of assets held by the
trustee so as to satisfy the right to reimbursement or
exoneration. In that sense, there is an equitable charge over the 'trust
assets' which may be enforced in the same way as any other equitable charge.
However, the enforcement of the charge is an exercise
of the prior rights
conferred upon the trustee as a necessary incident of the office of trustee
...
Accordingly, we agree with the following treatment of the matter by Sheller
JA:
'... the trustee has a beneficial interest in the trust assets to the extent
of its right to be indemnified out of those assets against
personal liabilities
incurred in the performance of the trust and that interest will be preferred to
the beneficial interests of
the cestuis que trust ...'" (emphasis added)
- Third,
in the later decision of Bruton Holdings Pty Ltd (In liq) v Federal
Commissioner of
Taxation[171],
this Court confirmed that a trustee's right of recoupment or exoneration is
supported by a lien over trust assets which amounts to
a proprietary interest
therein; and in CPT Custodian Pty Ltd v Commissioner of State Revenue
(Vic)[172],
it held that (as was held in
Buckle[173])
it is not possible to identify the trust fund until account is taken of the
right of exoneration.
- Accepting
that the trustee's right of exoneration generates a proprietary interest in the
trust fund not only is consistent with
the above decisions, but is consistent
with the nature of the trustee's interest in the fund as a security
interest in the form of an equitable
lien[174].
The general concept of a security involves a transaction where one person (the
creditor), to whom an obligation is owed by another
person (the debtor), is
afforded, in addition to the personal promise of the debtor to discharge the
obligation, rights exercisable
against some property of the debtor in order to
enforce discharge of the obligation. The concept involves a transaction, but
the
security is not the transaction, rather, it is the interest or
aggregation of rights which arises from such a transaction. Such an
interest is of a "proprietary" character: not necessarily in the sense of
rights amounting to full ownership, but in the
sense of rights available against
a thing, and not merely against a
person[175].
- A
number of cases have adopted imprecise language in describing the nature of the
proprietary interest generated in the trust assets
by the trustee's right of
exoneration, referring to the right of exoneration as the proprietary
interest[176].
This imprecision generates confusion: what the Commonwealth described as a
"category error". The proprietary interest generated
by the trustee's right of
exoneration is not the right of exoneration itself. Rather, the right of
exoneration generates a proprietary interest in the trust assets. To
label the right of exoneration a proprietary interest is to confuse the source
of the proprietary interest with the interest
itself.
- As has
been seen, "property" is relevantly defined in s 9 of the Corporations
Act as "any legal or equitable estate or interest (whether present or future
and whether vested or contingent) in real or personal property
of any
description and includes a thing in action". The trustee's proprietary interest
in the trust assets, generated by the right
of exoneration, clearly falls within
that broad definition of "property" and thus the phrase "property of the
company" used in s 433(3) of the Corporations Act.
- There
is, however, a further reason to reject the appellant's contentions. As stated
earlier, the appellant sought to sever the
right of exoneration from the
trustee's corresponding interest in the trust fund. The basis for this approach
was unclear, except
to seek to escape the application of s 433(3). The
approach should be rejected. The trustee's right of exoneration confers a
proprietary interest in the trust fund which takes
priority over competing
interests of beneficiaries. The right of exoneration and the trustee's
proprietary interest in the trust
fund are inextricably linked; the trustee's
interest in the fund rises and falls as debts are incurred on behalf of the
trust, and
satisfied out of the fund, and, of course, the right of
exoneration is the basis for the existence of the trustee's fluctuating
proprietary
interest in the trust
fund[177].
So much is consistent with the holding of this Court in CPT that "[u]ntil
satisfaction of rights of reimbursement or exoneration, it was impossible
to say what the trust fund in question
was"[178].
- Where
a corporate trustee becomes insolvent, those principles do not change. Where
s 433 applies, it operates, in its terms, on the trustee's interest in the
trust fund to the extent that that interest is in circulating
assets. Section
433 takes the property of the company as it finds it. Section 433 does not
and cannot operate only on the source of the trustee's interest in the
trust fund, namely the right of exoneration.
- In
addition to ignoring the breadth of the definition of "property" in s 9 and
the nature of the trustee's right of exoneration as generating a proprietary
interest in the fund, the appellant's first ground
of appeal also ignores that
historically employees have been given priority in the event of a corporate
insolvency in relation to
circulating assets (formerly floating assets) as set
out
above[179].
This Court should be slow to attribute an intention to Parliament to create
two classes of employees in insolvency: those employed
by a company and those
employed by a corporate trustee. The appellant put forward no principled
basis for such a differentiation.
- Thus,
the Court of Appeal correctly held that s 433 operated on the trustee's
proprietary interest in the trust fund and required the application of the
statutory priority rules in
s 433 to the receivership surplus.
Appellant's other arguments
- The
appellant identified three further matters which it contended supported its
construction of s 433, and tended against the construction now adopted of
that provision. None of these matters fell for determination in this appeal.
However, these additional matters explain why, contrary to the submissions of
the appellant, the construction adopted of s 433 (considered in light of
the implications of the construction for ss 556 and 561) is a practical and
sensible reading of the provision that does not generate absurd or unworkable
outcomes. The answer to the issues
in this appeal must recognise the wider,
and different, circumstances that may and will arise in other insolvencies,
particularly
given the importance of trading trusts to Australia's
economy[180].
- The
matters raised by the appellant were, first, the uncertainty about whether
creditors generally could be paid out of the trustee's
interest in the fund (the
primary position of the Commonwealth) or whether only trust creditors could be
paid out (the alternative
position of the Commonwealth), and whether this
uncertainty provided a reason to reject the Commonwealth's construction of
s 433. Second, if the Commonwealth's construction of s 433 was
adopted, the appellant identified two issues: how s 433 would operate
on a trustee of multiple trusts; and an alleged inconsistency between the
approach adopted in relation to an insolvent
corporate trustee, and the position
of a bankrupt trustee.
- A
further matter raised at the hearing must also be addressed: how costs of
administration, which have priority in a winding up
pursuant to s 556(1)(a)
of the Corporations Act, should be distributed where there is a corporate
trustee of multiple trusts. Each of the additional matters is addressed below.
Trust creditors or general creditors to be paid?
- Whether
general creditors are to be paid was not in issue in the appeal as Amerind only
had trust creditors. However, the question
was important because it spoke to
the interaction between the provisions of the Corporations Act mandating
that employees' claims have priority in relation to property subject to a
circulating security interest, and equitable principles
governing the right of
exoneration.
- The
appellant contended that the nature of the right of exoneration mandated that
only trust creditors could be paid out of the fund
pursuant to the right of
exoneration, and that this limitation on the nature of the trustee's interest in
the fund was incompatible
with the operation of s 433.
- The
Commonwealth adopted two positions – what it described as its primary and
alternative contentions.
- The
Commonwealth's primary contention was that s 433 applied to Amerind's
proprietary interest in the receivership surplus; but then, s 433
"swept away" the attributes of the property to which it applied, namely the
limited nature of Amerind's interest in the receivership
surplus. On that
basis, the Commonwealth argued that Amerind's proprietary interest in the
receivership surplus became "property
of [Amerind]" in the hands of the
receivers; and that that interest theoretically became available for
distribution to creditors generally, but only in accordance with the
priority rules mandated by s 433 (and in relation to liquidators,
s 561). This approach was consistent with the decision in
Re Enhill Pty
Ltd[181].
- The
Commonwealth's alternative contention was that s 433 operated on Amerind's
interest in the receivership surplus, but did not alter the limitations of that
interest. Thus, the assets
were only available to be applied by the
receivers to meet trust debts, but only in accordance with the priority
rules mandated by s 433 (and in relation to liquidators, s 561). This
approach was consistent with the decisions in In re Suco Gold Pty Ltd
(In liq)[182]
and of Allsop CJ in
Jones[183].
- The
Commonwealth's alternative contention should be accepted.
- The
position is straightforward where a right of reimbursement is exercised. The
trust assets that are the subject of the right
of reimbursement are the
trustee's personal assets, which fall into the trustee's general estate, and
will be divisible among creditors
of the trustee generally according to the
statutory rules of priority fixed by the Corporations Act, without
constraint or
limitation[184].
Relevantly to this appeal, as set out above, where a receiver is appointed
to property of a corporate trustee, s 433 of the Corporations Act
requires that employees' claims rank before a secured creditor in relation
to the distribution of assets subject to a circulating
security interest.
And, as has been noted, parallel provision is made under the
Corporations Act for liquidators to apply the same priority
rules[185].
- In
the case of a right of exoneration, the proprietary interest of the
trustee in the trust fund is shaped by its purpose and origins in the trust
relationship –
to pay trust creditors in order for the trustee to
exonerate itself from those
debts[186].
Circulating assets which are the subject of the right of exoneration can only
be applied to satisfy trust debts and are not available for distribution to
creditors generally. However, that limitation does not preclude the application
of the
relevant statutory priority rules − here, s 433.
- First,
and fundamentally, s 433 of the Corporations Act does not purport to
change the nature and character of property that falls under control of the
receiver as property of the
company[187].
Legal restrictions inherent in property must be respected where there is no
clear statutory mandate to adopt any other approach.
Having regard to the
breadth of the definition of "property" in s 9, if the Commonwealth's
primary position were accepted (and it should not be), property held on bare
trust would be property of the
corporate trustee and theoretically available for
distribution to all creditors.
- Second,
to come to a different conclusion would require the priority regime in
s 433 of the Corporations Act to be interpreted as intending to
alter the relationship between a trustee and beneficiaries such that the
proceeds of a trustee's
right of exoneration could be used to satisfy the
personal liabilities of the trustee, potentially leaving trust debts
unsatisfied[188].
There is nothing in the text of s 433, or the other provisions of the
priority regime in the Corporations Act, to support such an
intention. Further, to find otherwise would ignore that, in equity,
creditors cannot directly get at trust assets,
but instead have to be subrogated
to the trustee's right of
exoneration[189].
Multiple trusts
- The
appellant contended that difficulties that could arise in the case of an
insolvent corporate trustee of multiple trusts constituted
a "powerful
indication" as to why the construction of s 433 which has been adopted was
not consistent with the statutory scheme, given that s 555 mandates equal
treatment of debts and claims unless otherwise provided. That contention is
rejected.
- In
accordance with the earlier legal principles, a receiver or liquidator of an
insolvent corporate trustee of multiple trusts should
be viewed as holding
multiple funds, each directed to different groups of
creditors[190].
If Amerind had been a trustee of multiple trusts, s 433 (or s 561)
would then have applied, in its terms, to each fund separately, to the extent
that the fund constituted circulating assets.
- That
approach follows from the fact that, as has been seen, there is an inherent
limitation on the proprietary rights of the trustee
in a trust fund.
The funds can only be applied to satisfy debts incurred to creditors of the
relevant trust. As just seen, there
is nothing in the text of s 433 (read
with s 9) that suggests that s 433 intends to sweep away the
limitations and attributes of each proprietary interest of the trustee in each
trust fund.
- Put
in different terms, where the trustee is a trustee of multiple trusts,
the attributes of the trustee's proprietary interests
require that
s 433 be applied separately to each fund because s 433 does not alter
the nature of the assets such that the funds can be mixed and applied to meet
the claims of non-trust creditors.
- Of
course, it must be accepted that that approach may lead to practical
difficulties and expense. In such a case, equity may need
to fill the vacuum
left by the failure of the statute to deal expressly with multiple trust
funds[191].
An available mechanism is for a receiver to apply under s 424 of the
Corporations
Act[192],
or a liquidator to apply under s 90-15 of Sch 2 to the Corporations
Act[193]
("the Insolvency Practice Schedule"), for directions from the court to seek
to resolve any issues in relation to allocation between
multiple trusts. What
will be appropriate will vary from case to case.
Hotchpot (like marshalling) is one possibility; an illustration
of the
maxim that equity is
equality[194].
- Indeed,
Allsop CJ referred to the possibility of a liquidator or receiver applying the
principles of hotchpot to multiple funds in
Jones[195],
by reference to the approach of King CJ in In re Suco
Gold[196],
which is discussed shortly. In Jones, Allsop CJ stated
that[197]:
"Complexities may arise in circumstances of multiple trusts or of trusts and
activity on the corporation's own account. Considerations of, or akin to,
marshalling or hotchpot may be relevant as to the payment of debts dealt with in
the statutory order. But these complexities will be resolved by application
of principle and the text of the legislation, in a manner reflected by the
approach of King CJ in Re Suco Gold." (emphasis
added)
- His
Honour's suggestion should be adopted in the context of the application of
s 433 to a trustee of multiple trusts – the trust funds should be
kept separate and, where this causes practical difficulties or
expense, the
receiver or liquidator can apply to the court for directions. That is, equity
can fill the vacuum.
- Notably,
the statutory framework for a liquidator to apply for directions has changed.
Prior to its repeal and the enactment of
the Insolvency Practice
Schedule[198],
s 479(3) of the Corporations Act allowed a liquidator to apply to
the court for directions in relation to a matter arising under a winding up.
Section 90-15(1) of the Insolvency Practice Schedule now provides a source
of power for the court to provide directions to liquidators, and relevantly
provides that the court may make "such orders as it thinks fit" in relation to
the "external administration" of a
company[199].
Administration costs where multiple trusts or trust and non-trust
activities
- A
similar issue to that of multiple trusts, how costs of an administration given
priority under s 556(1)(a) should be allocated where there is a trustee of
multiple funds, was the subject of argument. Counsel for the appellant
submitted
that whatever decision the Court made had to be capable of applying in
a principled way to "all scenarios that might arise in relation
to a [corporate]
trustee". Further, counsel for the appellant contended that there was no
relevant distinction between the operation
of ss 433 and 556 but argued
that neither applied to a trustee's right of exoneration. Given this Court has
rejected the appellant's argument that
s 433 (or by implication,
ss 556 and 561) cannot apply where a trustee has exercised its right of
exoneration, it is necessary to address this further issue.
- Section
556(1)(a) of the Corporations Act provides that in the winding up of a
company "expenses (except deferred expenses) properly incurred by a relevant
authority in preserving,
realising or getting in property of the company, or in
carrying on the company's business" must be paid in priority to all other
unsecured debts and claims. Two issues may arise. First, on what basis can the
relevant authority (relevantly defined as a liquidator,
provisional liquidator
or
administrator[200])
be paid out of the assets of the trust fund where that relevant authority has
been appointed to a trustee of a trading trust? Second,
how should costs of
that relevant authority, properly incurred, be distributed against assets of the
trust where there is a corporate
trustee of multiple funds?
- In
relation to the first question, the relevant authority can be treated as a trust
creditor on the same basis as King CJ dealt with
a liquidator's expenses in
In re Suco
Gold[201].
In re Suco Gold considered s 292(1)(a) of the Companies Act 1962
(SA), which provided that costs and expenses of winding up be paid
"in priority to all other unsecured debts", a provision relevantly
similar
to s 556(1)(a) of the Corporations Act. King CJ there
stated[202]:
"The expression 'other unsecured debts' appears to imply that the
costs and expenses of winding up ... are regarded by the statute as debts of the
company. As the company's obligation as trustee to pay the debts incurred
in carrying out the trust cannot be performed unless the liquidation
proceeds,
it seems to me to be reasonable to regard the expenses mentioned above as
debts of the company incurred in discharging the duties
imposed by the trust and
as covered by the trustee's right of indemnity." (emphasis
added)
- King
CJ went on to
state[203]:
"On these principles which I have discussed, the liquidator is entitled to
have recourse to the property of each trust for the purpose
of meeting the costs
and expenses of winding up, the petitioner's costs and the liquidator's
remuneration, so far as they are incurred
in relation to each trust. As there
are no non-trust assets or liabilities, all the expenses are attributable to one
or other of
the trusts and must be apportioned between them. The liquidator
will be able to make an estimate of the work and expense involved
in the
liquidation so far as it relates to each trust. Where no apportionment
is possible, the maxim that equality is equity should provide the solution to
the problem of apportionment." (emphasis added)
- There
is no reason why the approach of King CJ should not be extended to apply to an
administrator or provisional liquidator of a
trustee of a trading trust: their
expenses should be regarded as debts of the corporate trustee which would
have priority under s 556(1)(a) of the Corporations Act as expenses
incurred in preserving, realising or getting in property of the company.
- Further,
distribution of those expenses between multiple trusts with a single trustee
should adopt the approach of King CJ set out
above[204].
The expenses of the winding up could be apportioned across each trust on
the basis of the extent to which the work of the relevant
authority related to
each trust. However, if apportioning the expenses across the multiple trusts
created practical difficulties,
the relevant authority (namely, the liquidator,
provisional liquidator or administrator) should apply to the court for
directions
in relation to their costs. The statutory basis for the liquidator
to apply to the court for directions has been set out above.
Administrators, of
course, have a further option under s 447A in Pt 5.3A of the
Corporations Act to apply to the court for
directions[205].
Adopting and adapting what Allsop CJ said in
Jones[206],
these complexities, as well as others, can and will be resolved by
application of principle and the text of the legislation, in
a manner reflected
by the approach of King CJ in In re Suco Gold.
Bankruptcy
- At
the hearing of the appeal, the appellant submitted that if s 433 of the
Corporations Act were found to apply to proceeds of the trustee's right
of exoneration, this would create a distinction between the treatment of a
corporate trustee in insolvency and a trustee in bankruptcy. The appellant
contended that, given trust property could not be applied
to meet the debts of a
bankrupt, then the same approach should apply in relation to a corporate
trustee. That contention should
not be accepted. The right of exoneration and
the proprietary interest generated in the fund means that the "trust property"
in
which the trustee has an interest ceases to be aptly described as property
"held on trust" but instead is property of the trustee
subject to limitations as
to use. So much was made clear in
Buckle[207].
- It follows
that there is no apparent inconsistency between the corporate insolvency
priority regime and s 116(2)(a) of the Bankruptcy Act 1966 (Cth),
which provides that property held by a bankrupt in trust for another person is
not property divisible amongst the creditors
of the bankrupt.
In Lane v Deputy Commissioner of
Taxation[208],
Derrington J held that money to be paid from trust assets to trust creditors
could not be characterised as "proceeds" within the
scope of the phrase
"proceeds of the property of the bankrupt" as that phrase is used in ss 108
and 109(1) of the Bankruptcy Act. That conclusion is wrong.
Conclusion
- The
first appeal ground must fail.
Second ground: whether an
insolvent corporate trustee's right of indemnity is comprised in or subject to a
"circulating security
interest" within the meaning of s 433
- The
appellant's contention in relation to this ground was that an insolvent
corporate trustee's right of indemnity falls outside
the ambit of property
secured by a "circulating security interest" or "comprised in or subject to a
circulating security interest"
under s 433(2)(a). The second appeal ground
fails because it proceeds on a misconstruction of s 433(3).
- Section
433(2) relevantly states that the provision applies where a receiver is
appointed on behalf of the holder of a debenture
secured by a circulating
security interest. That condition was satisfied in this appeal. It is then
necessary to consider s 433(3).
Section 433(3) only applies to
circulating assets. The only concern of s 433(3) was and remains the
application of the priority
rules to those circulating assets. There is no
requirement that the right of indemnity constitute a circulating asset.
- Again,
it is necessary to start with the statute.
- In
addition to s 433(3) of the Corporations Act, which has been
extracted earlier, two further legislative provisions must be considered.
- Section
51C of the Corporations Act provides that a "circulating security
interest" means a security interest that is:
"(a) a PPSA security interest, if:
(i) the security interest has attached to a circulating asset
within the meaning of the Personal Property Securities Act 2009; and
(ii) the grantor (within the meaning of that Act) has title to the asset; or
(b) a floating charge." (emphasis added)
- The
definition of "circulating asset" is to be found in the Personal Property
Securities Act 2009 (Cth). Section 340 of that Act relevantly
provides that "if a grantor grants a security interest in personal property to a
secured party, the personal
property is a circulating asset if ...
the personal property is covered by subsection (5) (unless
subsection (2) or (3) applies)" (second emphasis added). Among the
personal property listed in s 340(5) are an account that
is the proceeds of
inventory[209]
and an authorised deposit-taking institution (bank)
account[210].
- As
has been observed, the Court of Appeal held that the first requirement of
s 433(2)(a), that a receiver be appointed by a holder
of a debenture
secured by a circulating security interest (as defined in s 51C), was
satisfied and this conclusion was not challenged
by the appellant.
- However,
the Court of Appeal also held that s 433(2) contained a second requirement
before the section could apply, namely, the property
to be distributed had
to be subject to a circulating security interest. The Court accepted an
argument put forward by the Commonwealth,
for the first time in that Court,
that the second requirement was satisfied on the basis that, because the
right of indemnity gives
the trustee a proprietary interest in the trust assets,
the relevant question was which, if any, of those assets were circulating
assets
and therefore subject to the priority rules in s 433(3). It was not
necessary that the means by which the property was available to pay the
company's creditors was itself subject to a circulating security interest. The
Court
of Appeal said that if it was wrong in relation to that finding, then to
the extent that the trust assets were circulating assets,
that description
befitted the right of indemnity, which was a means of recourse to those same
assets.
- On
appeal to this Court, the appellant argued, consistently with its argument in
relation to the first ground, that the relevant
property in issue
(the "property of the company") was the right of indemnity itself, not any
underlying interest in the receivership
surplus. The appellant maintained that
the right of indemnity itself had to be comprised in or subject to a circulating
security
interest as defined by s 51C for s 433 to apply.
- The Commonwealth
submitted that where the requirements of s 433(2)(a) are met, as they had
been, s 433 did not contain any further
relevant provisions restricting its
application. During the course of oral argument, counsel for the Commonwealth
correctly accepted
that s 433 only applies to property subject to a
circulating security interest but submitted that it was not necessary for the
right
of indemnity to constitute property subject to a circulating security
interest. That submission should be accepted.
- There
is no provision requiring the trustee's right of exoneration itself to
constitute a circulating asset and, of course, the right
is not a
circulating asset. It is a fixed asset. Moreover, the text of
s 433 does not require, and provides no basis to find, that
the "gateway"
to reach the circulating assets – the right of exoneration – must
itself be a circulating asset. There
were only two questions: did
s 433(2) apply and, if so, did the receivers hold circulating assets to
which s 433(3) required the
application of certain priority rules. Here,
of course, s 433(2)(a) was satisfied and the receivers held circulating
assets in the
form of the receivership surplus.
- It
follows that the second ground of appeal must also fail.
Conclusion and orders
- The
appeal should be dismissed with costs.
[1] Australia, Law Reform Commission,
General Insolvency Inquiry, Report No 45 (1988) at 108 [240].
[2] D'Angelo, "The trust as a
surrogate company: The challenge of insolvency" (2014) 8 Journal of Equity
299 at 314.
[3] Re Byrne Australia Pty Ltd and
the Companies Act [1981] 1 NSWLR 394 at 399. See also Meagher, "Insolvency
of Trustees" (1979) 53 Australian Law Journal 648 at 653.
[4] Preferential Payments in
Bankruptcy Amendment Act 1897 (UK) (60 & 61 Vict c 19), s 2.
See, in Victoria, Companies Act 1910 (Vic), s 208(3)(b).
[5] This change in terminology was
introduced by the Personal Property Securities (Corporations and Other
Amendments) Act 2010 (Cth), Sch 1, item 87.
[6] Corporations Act 2001
(Cth), ss 556 and 561.
[7] See Preferential Payments in
Bankruptcy Amendment Act 1897 (UK) (60 & 61 Vict c 19), s 3;
Companies Act 1910 (Vic), s 114; Companies Act 1961 (Vic),
s 196.
[8] In re Panama, New Zealand, and
Australian Royal Mail Co (1870) LR 5 Ch App 318 at 322 (generally
regarded as the first case in which a floating charge was recognised); In re
Florence Land and Public Works Co; Ex parte Moor (1878) 10 Ch D 530 at
543, 546, 550; In re Hamilton's Windsor Ironworks; Ex parte Pitman and
Edwards (1879) 12 Ch D 707 at 713-714; In re Colonial Trusts Corporation;
Ex parte Bradshaw (1879) 15 Ch D 465 at 472. See Agnew v Commissioner of
Inland Revenue [2001] UKPC 28; [2001] 2 AC 710 at 717-718 [5]- [8].
[9] Agnew v Commissioner of Inland
Revenue [2001] UKPC 28; [2001] 2 AC 710 at 718 [9].
[10] See Companies Code,
s 331; Corporations Law, s 433.
[11] The amendments introduced by
the Personal Property Securities (Corporations and Other Amendments) Act
2010 (Cth), Sch 1, item 87 commenced operation on
30 January 2012.
[12] Buchler v Talbot [2004] UKHL 9; [2004]
2 AC 298 at 305 [11].
[13] Australia, House of
Representatives, Personal Property Securities (Corporations and Other
Amendments) Bill 2010, Explanatory Memorandum at 3 [1.2], 19 [8.1], [8.4];
Australia, House of Representatives, Parliamentary Debates (Hansard),
10 March 2010 at 2100; Australia, House of Representatives,
Parliamentary Debates (Hansard), 13 May 2010 at 3632.
[14] Australia, House of
Representatives, Personal Property Securities (Corporations and Other
Amendments) Bill 2010, Explanatory Memorandum at 6 [4.3], 7 [4.8].
[15] See Re Amerind Pty Ltd; The
Commonwealth v Byrnes and Hewitt [2018] VSCA 41; (2018) 54 VR 230 at 234 [9].
[16] Re Amerind Pty Ltd (In
liq) [2017] VSC 127; (2017) 320 FLR 118 at 129 [49].
[17] Re Amerind Pty Ltd (In
liq) [2017] VSC 127; (2017) 320 FLR 118 at 138 [68].
[18] Re Amerind Pty Ltd (In
liq) [2017] VSC 127; (2017) 320 FLR 118 at 200 [442], 201 [455], [459], 202 [464].
[19] Re Amerind Pty Ltd (In
liq) [2017] VSC 127; (2017) 320 FLR 118 at 192 [389].
[20] Re Amerind Pty Ltd (In
liq) [2017] VSC 127; (2017) 320 FLR 118 at 139 [76], 194 [401].
[21] Re Amerind Pty Ltd (In
liq) [2017] VSC 127; (2017) 320 FLR 118 at 129-130 [53], 141-142 [94].
[22] Re Amerind Pty Ltd; The
Commonwealth v Byrnes and Hewitt [2018] VSCA 41; (2018) 54 VR 230 at 233 [2].
[23] Re Amerind Pty Ltd; The
Commonwealth v Byrnes and Hewitt [2018] VSCA 41; (2018) 54 VR 230 at 298 [315].
[24] Re Amerind Pty Ltd; The
Commonwealth v Byrnes and Hewitt [2018] VSCA 41; (2018) 54 VR 230 at 302 [328].
[25] Re Amerind Pty Ltd; The
Commonwealth v Byrnes and Hewitt [2018] VSCA 41; (2018) 54 VR 230 at 303 [334], 323
[417].
[26] Re Amerind Pty Ltd; The
Commonwealth v Byrnes and Hewitt [2018] VSCA 41; (2018) 54 VR 230 at 297-298
[311]- [312].
[27] Re Amerind Pty Ltd; The
Commonwealth v Byrnes and Hewitt [2018] VSCA 41; (2018) 54 VR 230 at 291 [285].
[28] Re Amerind Pty Ltd; The
Commonwealth v Byrnes and Hewitt [2018] VSCA 41; (2018) 54 VR 230 at 235 [14].
[29] Octavo Investments Pty Ltd v
Knight [1979] HCA 61; (1979) 144 CLR 360 at 367; [1979] HCA 61. See also Vacuum
Oil Co Pty Ltd v Wiltshire [1945] HCA 37; (1945) 72 CLR 319 at 324; [1945] HCA 37.
[30] Meagher, "Insolvency of
Trustees" (1979) 53 Australian Law Journal 648 at 652. See also
Watling v Lewis [1911] 1 Ch 414 at 423.
[31] Scott v Surman (1742)
Willes 400 at 402 [125 ER 1235 at 1236]; Winch v Keeley (1787) 1 Term Rep
619 at 623 [1787] EngR 38; [99 ER 1284 at 1286]; Boddington v Castelli [1853] EngR 515; (1853) 1 El &
Bl 879 at 885 [118 ER 665 at 667].
[32] Winch v Keeley (1787) 1
Term Rep 619 at 623 [1787] EngR 38; [99 ER 1284 at 1286]. See also Gladstone v Hadwen
[1813] EngR 359; (1813) 1 M & S 517 at 526 [105 ER 193 at 197]; Britten v Perrott
(1834) 2 C & M 597 at 602 [1834] EngR 64; [149 ER 898 at 901].
[33] Bankruptcy Act 1924
(Cth), s 4; Bankruptcy Act 1966 (Cth), s 5(1).
[34] Bankruptcy Act 1924
(Cth), s 91(a); Bankruptcy Act 1966 (Cth), s 116(2)(a).
[35] Corporations Act 2001
(Cth), s 9.
[36] Angove's Pty Ltd v
Bailey [2016] UKSC 47; [2016] 1 WLR 3179 at 3190 [25]; [2017] 1 All ER 773 at 786.
[37] Re Sutherland; French
Caledonia Travel Service Pty Ltd (In liq) [2003] NSWSC 1008; (2003) 59 NSWLR 361 at 425
[206]; Re Stansfield DIY Wealth Pty Ltd (In liq) [2014] NSWSC 1484; (2014) 291 FLR 17
at 22-23 [16]; Jones v Matrix Partners Pty Ltd; Re Killarnee Civil &
Concrete Contractors Pty Ltd (In liq) [2018] FCAFC 40; (2018) 260 FCR 310 at 329 [69],
333 [89], 354-355 [211]. See also Octavo Investments Pty Ltd v Knight
[1979] HCA 61; (1979) 144 CLR 360 at 369-370.
[38] Re Stansfield DIY Wealth Pty
Ltd (In liq) [2014] NSWSC 1484; (2014) 291 FLR 17 at 22 [16].
[39] Re Amerind Pty Ltd; The
Commonwealth v Byrnes and Hewitt [2018] VSCA 41; (2018) 54 VR 230 at 245 [62].
[40] An Act for the better relief
of the creditors against such as shall become bankrupts 1604 (1 Jac 1 c 15),
s 8. See Beckham v Drake [1849] EngR 843; (1849) 2 HLC 579 at 627 [9 ER 1213 at
1231]; Rose v Buckett [1901] 2 KB 449 at 454.
[41] Davies v The English,
Scottish & Australian Bank Ltd (1934) 7 ABC 210 at 214; Fuller v
Beach Petroleum NL [1993] FCA 453; (1993) 43 FCR 60 at 68, 74-75.
[42] DKLR Holding Co (No 2)
Pty Ltd v Commissioner of Stamp Duties [1980] 1 NSWLR 510 at 518-519,
citing Meagher and Gummow, Jacobs' Law of Trusts in New South Wales,
3rd ed (1971) at 109. See also Maitland, Equity: also The Forms of
Action at Common Law (1909) at 17-18; Maitland, Equity: A Course of
Lectures, 2nd ed (rev) (1936) at 17.
[43] Gladstone v Hadwen
[1813] EngR 359; (1813) 1 M & S 517 at 526 [105 ER 193 at 197].
[44] Carpenter v Marnell
[1802] EngR 97; (1802) 3 Bos & Pul 40 at 41 [127 ER 23 at 24]. See also Carvalho v
Burn [1833] EngR 41; (1833) 4 B & Ad 382 at 393 [110 ER 499 at 503].
[45] Octavo Investments Pty Ltd v
Knight [1979] HCA 61; (1979) 144 CLR 360 at 370; Chief Commissioner of Stamp
Duties (NSW) v Buckle [1998] HCA 4; (1998) 192 CLR 226 at 246 [50]; [1998] HCA 4.
Compare Meagher, "Insolvency of Trustees" (1979) 53 Australian Law
Journal 648 at 650; Heydon and Leeming, Jacobs' Law of Trusts in
Australia, 8th ed (2016) at 523 [21-15].
[46] Trustee Act 1925 (NSW),
s 59(4); Trustee Act 1958 (Vic), s 36(2); Trustee Act
1936 (SA), s 35(2); Trusts Act 1973 (Qld), s 72;
Trustees Act 1962 (WA), s 71; Trustee Act 1898 (Tas),
s 27(2); Trustee Act 1893 (NT), s 26; Trustee Act 1925
(ACT), s 59(4).
[47] Worrall v Harford [1802] EngR 342; (1802)
8 Ves Jun 4 at 8 [32 ER 250 at 252]; Savage v Union Bank of Australia Ltd
[1906] HCA 37; (1906) 3 CLR 1170 at 1187-1188; [1906] HCA 37; In re Suco Gold Pty Ltd
(In liq) (1983) 33 SASR 99 at 104; Chief Commissioner of Stamp Duties
(NSW) v Buckle [1998] HCA 4; (1998) 192 CLR 226 at 245 [47]; Jones v Matrix Partners
Pty Ltd; Re Killarnee Civil & Concrete Contractors Pty Ltd (In liq)
[2018] FCAFC 40; (2018) 260 FCR 310 at 321 [38]- [39].
[48] See In re Blundell; Blundell
v Blundell (1888) 40 Ch D 370 at 376-377; Chief Commissioner of
Stamp Duties (NSW) v Buckle [1998] HCA 4; (1998) 192 CLR 226 at 245 [47]; Bruton
Holdings Pty Ltd (In liq) v Federal Commissioner of Taxation [2009] HCA 32; (2009) 239
CLR 346 at 358-359 [43]; [2009] HCA 32.
[49] [1998] HCA 4; (1998) 192 CLR 226 at 245
[47].
[50] Scott and Fratcher, The Law
of Trusts, 4th ed (1988), vol 3A at 345 §246.
[51] Levy v Kum Chah (1936)
56 CLR 159 at 173; [1936] HCA 60; Vacuum Oil Co Pty Ltd v Wiltshire
[1945] HCA 37; (1945) 72 CLR 319 at 336-337. See also Re Enhill Pty Ltd [1983] VicRp 52; [1983] 1 VR 561
at 569. Compare the use of "contribution" generally to describe partial
recovery: Mitchell, The Law of Contribution and Reimbursement (2003) at
9-10 [1.14]-[1.15].
[52] Savage v Union Bank of
Australia Ltd [1906] HCA 37; (1906) 3 CLR 1170 at 1197.
[53] In re Kaupthing Singer &
Friedlander Ltd [No 2] [2011] UKSC 48; [2012] 1 AC 804 at 813 [8].
[54] Lane v Deputy Commissioner
of Taxation (2017) 253 FCR 46 at 68 [54], citing Cherry v Boultbee
[1839] EngR 1099; (1839) 4 My & Cr 442 [41 ER 171]. See also Jennings v Mather [1902]
1 KB 1 at 5.
[55] Octavo Investments Pty Ltd v
Knight [1979] HCA 61; (1979) 144 CLR 360 at 370; Chief Commissioner of Stamp Duties
(NSW) v Buckle [1998] HCA 4; (1998) 192 CLR 226 at 246 [49]; Bruton Holdings Pty
Ltd (In liq) v Federal Commissioner of Taxation [2009] HCA 32; (2009) 239 CLR 346 at
359 [43].
[56] Jennings v Mather [1901]
1 QB 108 at 113-114; Jennings v Mather [1902] 1 KB 1 at 6; Octavo
Investments Pty Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360 at 367;
Chief Commissioner of Stamp Duties (NSW) v Buckle [1998] HCA 4; (1998) 192 CLR 226
at 247 [50]; Bruton Holdings Pty Ltd (In liq) v Federal
Commissioner of Taxation [2009] HCA 32; (2009) 239 CLR 346 at 358-359 [43].
[57] [1998] HCA 4; (1998) 192 CLR 226 at 247 [50].
See also Vacuum Oil Co Pty Ltd v Wiltshire [1945] HCA 37; (1945) 72 CLR 319 at 335;
Octavo Investments Pty Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360 at 367.
[58] Chief Commissioner of Stamp
Duties (NSW) v Buckle [1998] HCA 4; (1998) 192 CLR 226 at 247 [50]. See Hewett v
Court [1983] HCA 7; (1983) 149 CLR 639 at 663; [1983] HCA 7.
[59] Vacuum Oil Co Pty Ltd v
Wiltshire [1945] HCA 37; (1945) 72 CLR 319 at 335; Chief Commissioner of Stamp
Duties (NSW) v Buckle [1998] HCA 4; (1998) 192 CLR 226 at 247 [51], quoting Chief
Commissioner of Stamp Duties v Buckle (1995) 38 NSWLR 574 at
586.
[60] (1880) 15 Ch D 548 at 552,
quoted in Jennings v Mather [1901] 1 QB 108 at 115. See also In re
Beddoe; Downes v Cottam [1893] 1 Ch 547 at 558, quoted in
Chief Commissioner of Stamp Duties (NSW) v Buckle [1998] HCA 4; (1998) 192 CLR 226
at 246 [49].
[61] Vacuum Oil Co Pty Ltd v
Wiltshire [1945] HCA 37; (1945) 72 CLR 319 at 335; Octavo Investments Pty Ltd v Knight
[1979] HCA 61; (1979) 144 CLR 360 at 367, 370.
[62] Heydon and Leeming, Jacobs'
Law of Trusts in Australia, 8th ed (2016) at 520 [21-12]; In
re Johnson; Shearman v Robinson (1880) 15 Ch D 548 at 552, 555; In re
Frith; Newton v Rolfe [1902] 1 Ch 342 at 345-346; In re British Power
Traction and Lighting Co Ltd; Halifax Joint Stock Banking Co Ltd v British Power
Traction and Lighting Co Ltd
[1910] 2 Ch 470 at 475-476; Corozo Pty Ltd v
Total Australia Ltd [1987] 2 Qd R 11 at 19-20; Re Enhill Pty Ltd
[1983] VicRp 52; [1983] 1 VR 561 at 564-565.
[63] Savage v Union Bank of
Australia Ltd [1906] HCA 37; (1906) 3 CLR 1170 at 1196.
[64] Jennings v Mather [1901]
1 QB 108 at 117; Jennings v Mather [1902] 1 KB 1 at 5-6, 9; Savage v
Union Bank of Australia Ltd [1906] HCA 37; (1906) 3 CLR 1170 at 1188, 1196; Octavo
Investments Pty Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360 at 371.
[65] Savage v Union Bank of
Australia Ltd [1906] HCA 37; (1906) 3 CLR 1170 at 1188, 1197.
[66] Redman v Permanent Trustee
Co of New South Wales Ltd [1916] HCA 47; (1916) 22 CLR 84 at 96; [1916] HCA 47; Brown v
Heffer [1967] HCA 40; (1967) 116 CLR 344 at 349; [1967] HCA 40; Legione v Hateley
[1983] HCA 11; (1983) 152 CLR 406 at 456-457; [1983] HCA 11; Bahr v Nicolay [No 2]
[1988] HCA 16; (1988) 164 CLR 604 at 612, 628, 646; [1988] HCA 16; Stern v McArthur
[1988] HCA 51; (1988) 165 CLR 489 at 511, 522, 537; [1988] HCA 51; Tanwar Enterprises
Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315 at 333 [53]; [2003] HCA 57.
[67] [2018] FCAFC 40; (2018) 260 FCR 310 at 315 [4],
331-332 [79]-[82], 338 [107]. See also at 351-352 [197]; Re Byrne Australia
Pty Ltd and the Companies Act [1981] 1 NSWLR 394 at 398.
[68] In re Rogers; Ex parte
Holland & Hannen (1891) 8 Morr 243 at 248.
[69] (1993) 41 FCR 550 at 552-553.
See also Jones v Matrix Partners Pty Ltd; Re Killarnee Civil &
Concrete Contractors Pty Ltd (In liq) [2018] FCAFC 40; (2018) 260 FCR 310 at 331-332
[79]- [82].
[70] Mason, "Themes and Prospects",
in Finn (ed), Essays in Equity (1985) 242 at 250.
[71] [1983] VicRp 52; [1983] 1 VR 561.
[72] [1983] VicRp 52; [1983] 1 VR 561 at 563,
572.
[73] [1983] VicRp 52; [1983] 1 VR 561 at 564,
570.
[74] [1983] VicRp 52; [1983] 1 VR 561 at 564.
[75] [1983] VicRp 52; [1983] 1 VR 561 at 563-564.
[76] Re Byrne Australia Pty Ltd
and the Companies Act [1981] 1 NSWLR 394 at 398, although Needham J
also concluded that the liquidator could only recover if he was a creditor of
the trust,
which Needham J later concluded he was not: Re Byrne
Australia Pty Ltd and the Companies Act [No 2] [1981] 2 NSWLR 364 at
367.
[77] [1983] VicRp 52; [1983] 1 VR 561 at 572.
[78] [1911] 2 KB 705 at 711.
[79] (1983) 33 SASR 99.
[80] (1983) 33 SASR 99 at 110,
113.
[81] (1983) 33 SASR 99 at 105.
[82] (1983) 33 SASR 99 at 105. See
also In re Richardson; Ex parte St Thomas's Hospital (Governors) [1911] 2
KB 705 at 711, 714, 717; Official Assignee v Jarvis [1922] NZGazLawRp 213; [1923] NZLR 1009 at
1019.
[83] (1983) 33 SASR 99 at 114.
[84] (1983) 33 SASR 99 at 108.
[85] Re Amerind Pty Ltd; The
Commonwealth v Byrnes and Hewitt [2018] VSCA 41; (2018) 54 VR 230 at 298 [315].
[86] [2016] NSWSC 106; (2016) 305 FLR 222 at 230-232
[23]- [25].
[87] [2016] NSWSC 106; (2016) 305 FLR 222 at 230
[23].
[88] Re Amerind Pty Ltd (In
liq) [2017] VSC 127; (2017) 320 FLR 118 at 138 [67]. See also Bruton Holdings Pty
Ltd (In liq) v Federal Commissioner of Taxation [2011] FCAFC 79; (2011) 193 FCR 442 at
449 [27]; Woodgate, in the matter of Bell Hire Services Pty Ltd (In liq)
[2016] FCA 1583 at [35].
[89] See McPherson, "The Insolvent
Trading Trust", in Finn (ed), Essays in Equity (1985) 142 at 156; Heydon
and Leeming, Jacobs' Law of Trusts in Australia, 8th ed (2016) at
523 [21-15]. Compare In re Suco Gold Pty Ltd (In liq) (1983) 33 SASR 99
at 109.
[90] Re Amerind Pty Ltd (In
liq) [2017] VSC 127; (2017) 320 FLR 118 at 215 [542].
[91] [2018] FCAFC 40; (2018) 260 FCR 310 at 338
[106].
[92] Re Amerind Pty Ltd
(In liq) [2017] VSC 127; (2017) 320 FLR 118 at 189 [373].
[93] Re Amerind Pty Ltd
(In liq) [2017] VSC 127; (2017) 320 FLR 118 at 139 [79], 142 [99], 182 [333].
[94] Re Amerind Pty Ltd
(In liq) [2017] VSC 127; (2017) 320 FLR 118 at 189 [374], 192 [389].
[95] Re Amerind Pty Ltd
(In liq) [2017] VSC 127; (2017) 320 FLR 118 at 192 [391].
[96] Re Amerind Pty Ltd; The
Commonwealth v Byrnes and Hewitt [2018] VSCA 41; (2018) 54 VR 230 at 259 [124], 287
[269]-[271], 289 [281], 291 [285].
[97] Re Amerind Pty Ltd; The
Commonwealth v Byrnes and Hewitt [2018] VSCA 41; (2018) 54 VR 230 at 297-298 [311], 298-299
[315]-[317].
[98] Re Amerind Pty Ltd; The
Commonwealth v Byrnes and Hewitt [2018] VSCA 41; (2018) 54 VR 230 at 289-290 [282], 291
[286].
[99] [1983] VicRp 52; [1983] 1 VR 561.
[100] (1983) 33 SASR 99.
[101] [1979] HCA 61; (1979) 144 CLR 360 at 367
per Stephen, Mason, Aickin and Wilson JJ; [1979] HCA 61.
[102] [1998] HCA 4; (1998) 192 CLR 226 at 246
[48] per Brennan CJ, Toohey, Gaudron, McHugh and Gummow JJ; [1998] HCA
4. See also CPT Custodian Pty Ltd v Commissioner of State Revenue (Vic)
[2005] HCA 53; (2005) 224 CLR 98 at 121 [51] per Gleeson CJ, McHugh, Gummow, Callinan
and Heydon JJ; [2005] HCA 53.
[103] Ford, "Trading Trusts and
Creditors' Rights" [1981] MelbULawRw 1; (1981) 13 Melbourne University Law Review 1 at 4-5,
14, 17.
[104] See Maitland, Equity,
also The Forms of Action at Common Law (1909), lectures 9-11. See also
Stone, "The Nature of the Rights of the Cestui Que Trust" (1917) 17
Columbia Law Review 467; Jordan, Chapters on Equity in New South
Wales, 6th ed (1947) at 17. See and contrast Scott, "The Nature of the
Rights of the Cestui Que Trust" (1917) 17 Columbia Law Review 269;
Hohfeld, "The Relations between Equity and Law" (1913) 11 Michigan Law
Review 537.
[105] DKLR Holding Co
(No 2) Pty Ltd v Commissioner of Stamp Duties [1980] 1 NSWLR 510 at
518-519 per Hope JA (Glass JA agreeing at 531); Buckle [1998] HCA 4; (1998)
192 CLR 226 at 242 [37] per Brennan CJ, Toohey, Gaudron, McHugh and
Gummow JJ. See also Federal Commissioner of Taxation v Linter Textiles
Australia Ltd (In liq) [2005] HCA 20; (2005) 220 CLR 592 at 606 [30] per
Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; [2005] HCA 20.
[106] Linter [2005] HCA 20; (2005) 220 CLR
592 at 612 [52]- [53] per Gleeson CJ, Gummow, Hayne, Callinan and
Heydon JJ; CPT Custodian [2005] HCA 53; (2005) 224 CLR 98 at 119 [44] per
Gleeson CJ, McHugh, Gummow, Callinan and Heydon JJ; ElecNet (Aust)
Pty Ltd v Federal Commissioner of Taxation [2016] HCA 51; (2016) 259 CLR 73 at 87-88 [50]
per Kiefel, Gageler, Keane and Gordon JJ, 98-99 [86]-[87] per
Nettle J; [2016] HCA 51.
[107] Re Transphere Pty Ltd
(1986) 5 NSWLR 309 at 311 per McLelland J. See White, "Insolvent Trusts:
Implications of Buckle and CPT Custodian" (2017) 44 Australian
Bar Review 1 at 9-11.
[108] Re Exhall Coal Co Ltd
[1866] EngR 131; (1866) 35 Beav 449 at 452-453 per Lord Romilly MR [1866] EngR 131; [55 ER 970 at 971];
Vacuum Oil Co Pty Ltd v Wiltshire [1945] HCA 37; (1945) 72 CLR 319 at 335 per
Dixon J; [1945] HCA 37; Octavo [1979] HCA 61; (1979) 144 CLR 360 at 369-370 per
Stephen, Mason, Aickin and Wilson JJ; Buckle [1998] HCA 4; (1998) 192 CLR 226 at
246 [47] per Brennan CJ, Toohey, Gaudron, McHugh and Gummow JJ.
[109] In re Johnson; Shearman v
Robinson (1880) 15 Ch D 548 at 552 per Jessel MR; In re Evans;
Evans v Evans (1887) 34 Ch D 597 at 601 per Cotton LJ; Jennings v
Mather [1901] 1 QB 108 at 115 per Kennedy J; [1902] 1 KB 1 at 6-7 per
Stirling LJ; Buckle [1998] HCA 4; (1998) 192 CLR 226 at 246 [47] per
Brennan CJ, Toohey, Gaudron, McHugh and Gummow JJ.
[110] See, eg, Grissell v
Money (1869) 38 LJ Ch 312 per Lord Romilly MR; cf Darke v
Williamson [1858] EngR 1020; (1858) 25 Beav 622 at 626-627 per Romilly MR [1858] EngR 1020; [53 ER 774 at
776].
[111] Buckle [1998] HCA 4; (1998) 192 CLR
226 at 247 [50] per Brennan CJ, Toohey, Gaudron, McHugh and Gummow JJ.
See also Bruton Holdings Pty Ltd (In liq) v Federal Commissioner of
Taxation [2009] HCA 32; (2009) 239 CLR 346 at 358-359 [43] per French CJ, Gummow,
Hayne, Heydon and Bell JJ; [2009] HCA 32.
[112] Worrall v Harford
[1802] EngR 342; (1802) 8 Ves Jun 4 at 8 per Lord Eldon LC [1802] EngR 342; [32 ER 250 at 252], quoted in
Buckle [1998] HCA 4; (1998) 192 CLR 226 at 245 [47]. See and compare Hewett v
Court [1983] HCA 7; (1983) 149 CLR 639 at 663-664 per Deane J; [1983] HCA 7.
[113] Livingston v Commissioner
of Stamp Duties (Q) [1960] HCA 94; (1960) 107 CLR 411 at 448 per Kitto J; [1960] HCA
94.
[114] Buckle [1998] HCA 4; (1998) 192 CLR
226 at 246 [47]- [48] per Brennan CJ, Toohey, Gaudron, McHugh and
Gummow JJ.
[115] Waters, "The Nature of the
Trust Beneficiary's Interest" (1967) 45 Canadian Bar Review 219 at
274.
[116] Jennings v Mather
[1901] 1 QB 108 at 117 per Kennedy J; [1902] 1 KB 1 at 6 per
Sterling LJ, 9 per Mathew LJ; Savage v Union Bank of Australia
Ltd [1906] HCA 37; (1906) 3 CLR 1170 at 1188 per Griffith CJ, 1196 per
O'Connor J; [1906] HCA 37; Octavo [1979] HCA 61; (1979) 144 CLR 360 at 367 per
Stephen, Mason, Aickin and Wilson JJ.
[117] See [76]-[77] above.
[118] Re Amerind Pty Ltd; The
Commonwealth v Byrnes and Hewitt [2018] VSCA 41; (2018) 54 VR 230 at 302 [328]- [329].
[119] See [76] above.
[120] [1969] HCA 16; (1969) 121 CLR 529 at 544;
[1969] HCA 16.
[121] (1983) 33 SASR 99 at 105 per
King CJ (Matheson J agreeing at 115), 114 per Jacobs J
(Matheson J agreeing at 115).
[122] [1983] VicRp 52; [1983] 1 VR 561 at 564 per
Young CJ (Gray J agreeing at 572), 569 per Lush J (Gray J
agreeing at 572).
[123] Re Byrne Australia Pty
Ltd and the Companies Act [1981] 1 NSWLR 394 at 399 per Needham J;
Re ADM Franchise Pty Ltd (1983) 7 ACLR 987 at 988-989 per
McLelland J; Re Indopal Pty Ltd (1987) 12 ACLR 54 at 57 per
McLelland J; Re G B Nathan and Co Pty Ltd (In liq)
(1991) 24 NSWLR 674 at 685 per McLelland J; Sjoquist v Rock Eisteddfod
Productions Pty Ltd (1996) 19 ACSR 339 at 343 per McLelland CJ
in Eq; 13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd
(In liq) [1999] FCA 144; (1999) 30 ACSR 377 at 384 per Finkelstein J; Jones v
Matrix Partners Pty Ltd; Re Killarnee Civil & Concrete Contractors Pty Ltd
(In liq) [2018] FCAFC 40; (2018) 260 FCR 310 at 319-320 [30], 331 [76]-[78], 338 [106]
per Allsop CJ (Farrell J agreeing at 351-352 [197]), 349 [178] per
Siopis J. See also McPherson, "The
Insolvent Trading Trust", in Finn (ed),
Essays in Equity (1985) 142 at 153-154; Mason, "Themes and Prospects", in
Finn (ed), Essays in Equity (1985) 242 at 250; Merralls, "Unsecured
Borrowings by Trustees of Commercial Trusts" (1993) 10 Australian Bar
Review 248 at 249-250.
[124] Re Amerind Pty Ltd
(In liq) [2017] VSC 127; (2017) 320 FLR 118 at 182 [327], 189 [371].
[125] See [79] above.
[126] (1983) 33 SASR 99 at
107-108.
[127] [2018] FCAFC 40; (2018) 260 FCR 310 at
335-337 [100]- [101].
[128] Re Amerind Pty Ltd
(In liq) [2017] VSC 127; (2017) 320 FLR 118 at 141-142 [94].
[129] Re Independent Contractor
Services (Aust) Pty Ltd (In liq) [No 2] [2016] NSWSC 106; (2016) 305 FLR 222 at
230-231 [23] per Brereton J.
[130] McPherson, "The Insolvent
Trading Trust", in Finn (ed), Essays in Equity (1985) 142 at 157-158,
citing Re Alfred Shaw and Co Ltd; Ex parte Mackenzie (1897) 8 QLJ 93 at
96 per Griffith CJ.
[131] Heydon and Leeming,
Jacobs' Law of Trusts in Australia, 8th ed (2016) at 523 [21-15], citing
Keefe v Law Society of New South Wales (1999) 44 NSWLR 451 and
Re Sutherland; French Caledonia Travel Service Pty Ltd (In liq)
[2003] NSWSC 1008; (2003) 59 NSWLR 361. See also Meagher, "Insolvency of Trustees" (1979) 53
Australian Law Journal 648 at 653.
[132] Heydon and Leeming,
Jacobs' Law of Trusts in Australia, 8th ed (2016) at 523 [21-15].
[133] See, eg, Taylor v
Wheeler (1706) 2 Vern 564 at 566 per Wright LK [1706] EngR 66; [23 ER 968 at 968-969];
Bennet v Davis [1725] EngR 7; (1725) 2 P Wms 316 at 318 per Jekyll MR [1725] EngR 7; [24 ER 746 at
747]; Tyrrell v Hope [1743] EngR 57; (1743) 2 Atk 558 at 562 per Fortescue MR [1743] EngR 57; [26 ER
735 at 737]; Ex parte Dumas (1754) 2 Ves Sen 582 at 585 per Lord
Hardwicke LC [28 ER 372 at 373]; Mitford v Mitford [1803] EngR 676; (1803) 9 Ves Jun
87 at 99-100 per Grant MR [1803] EngR 676; [32 ER 534 at 539]; Ex parte Hanson [1806] EngR 148; (1806)
12 Ves Jun 346 at 349 per Lord Erskine LC [1806] EngR 148; [33 ER 131 at 132]; Turner v
Harvey [1821] EngR 512; (1821) Jacob 169 at 173-174 per Lord Eldon LC [1821] EngR 512; [37 ER 814 at
816].
[134] Scott v Surman (1742)
Willes 400 at 402-403 per Willes LCJ [125 ER 1235 at 1236-1237]; Winch v
Keeley [1787] EngR 38; (1787) 1 TR 619 at 622-623 per Ashhurst J [1787] EngR 38; [99 ER 1284 at 1286];
Boddington v Castelli [1853] EngR 515; (1853) 1 El & Bl 879 at 885 per Parke B
[1853] EngR 515; [118 ER 665 at 667].
[135] Carpenter v Marnell
[1802] EngR 97; (1802) 3 Bos & Pul 40 at 41 per Lord Alvanley CJ [1802] EngR 97; [127 ER 23 at 24].
See also Gladstone v Hadwen [1813] EngR 359; (1813) 1 M & S 517 at 526-527 per Lord
Ellenborough CJ [1813] EngR 359; [105 ER 193 at 197]; Carvalho v Burn [1833] EngR 41; (1833) 4 B
& Ad 382 at 393-394 per Littledale J [1833] EngR 41; [110 ER 499 at 503]; Britten v
Perrott (1834) 2 C & M 597 at 602 per Lord Lyndhurst CB, 602 per Parke B
[1834] EngR 64; [149 ER 898 at 901].
[136] Octavo [1979] HCA 61; (1979) 144 CLR
360 at 370 per Stephen, Mason, Aickin and Wilson JJ.
[137] Westpac Banking
Corporation v Queensland [2016] FCA 269 at [20]- [21] per Edelman J.
See also In re Richardson; Ex parte Governors of St Thomas's
Hospital [1911] 2 KB 705 at 713-714 per Fletcher Moulton LJ.
[138] See generally Glenn, The
Law Governing Liquidation (1935) at 449-451 §312, 764-768 §532;
Zwieten (ed), Goode on Principles of Corporate Insolvency Law, 5th
ed (2018) at 119-120 [3-05]; Murray and Harris, Keay's Insolvency: Personal
and Corporate Law and Practice, 9th ed (2016) at 446-447
[14.10]-[14.15].
[139] (1983) 33 SASR 99 at
109-110.
[140] [2018] FCAFC 40; (2018) 260 FCR 310 at
338-339 [108].
[141] Re Suco Gold (1983)
33 SASR 99 at 110.
[142] See and compare Re Byrne
[1981] 1 NSWLR 394; Re Byrne Australia Pty Ltd and the Companies Act
[No 2] [1981] 2 NSWLR 364.
[143] [2018] FCAFC 40; (2018) 260 FCR 310 at 339
[108].
[144] The receivers did not make
any substantive submissions in this appeal.
[145] Corporations Act,
s 433(3).
[146] Corporations Act,
ss 433(3)(c) and 556(1)(e), (g) and (h).
[147] See Corporations Act,
s 433(2)(a) read with s 51C.
[148] See generally
Preferential Payments in Bankruptcy Amendment Act 1897 (UK)
(60 & 61 Vict c 19), s 2 read with Preferential Payments in
Bankruptcy Act 1888 (UK) (51 & 52 Vict c 62), s 1.
In Victoria, see Companies Act 1910 (Vic), s 208(1) and
(3)(b).
[149] Corporations Act,
ss 433(3)(c) and 561(a).
[150] By operation of
Corporations Act, ss 556 and 561.
[151] See, in this regard,
Jones v Matrix Partners Pty Ltd; Re Killarnee Civil & Concrete
Contractors Pty Ltd (In liq) [2018] FCAFC 40; (2018) 260 FCR 310.
[152] There was also no dispute
that s 433(2)(b) was satisfied.
[153] Jones [2018] FCAFC 40; (2018) 260 FCR
310 at 320 [31]. See also Allsop, "The Nature of the Trustee's Right of
Indemnity and Its Implications for Equitable Principle", paper presented
to
the Society of Trust and Estate Practitioners, 18 July 2012 at 1-2.
[154] Vacuum Oil Co Pty Ltd v
Wiltshire [1945] HCA 37; (1945) 72 CLR 319 at 324; [1945] HCA 37; Octavo Investments Pty
Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360 at 367; [1979] HCA 61.
[155] Heydon, Leeming and Turner,
Meagher, Gummow & Lehane's Equity Doctrines & Remedies, 5th ed
(2015) at 1150 [41-140]; Heydon and Leeming, Jacobs' Law of Trusts in
Australia, 8th ed (2016) at 510 [21-02]. See also Octavo Investments
[1979] HCA 61; (1979) 144 CLR 360 at 367, citing Vacuum Oil [1945] HCA 37; (1945) 72 CLR
319.
[156] Jones [2018] FCAFC 40; (2018) 260 FCR
310 at 320 [34].
[157] Chief Commissioner of
Stamp Duties (NSW) v Buckle [1998] HCA 4; (1998) 192 CLR 226 at 245 [47]; [1998] HCA 4,
quoting Scott on Trusts, 4th ed (1988), vol 3A, §246.
[158] Jones [2018] FCAFC 40; (2018) 260 FCR
310 at 321 [37].
[159] See Trustee Act 1925
(NSW), s 59(4); Trustee Act 1958 (Vic), s 36(2); Trustee
Act 1936 (SA), s 35(2); Trusts Act 1973 (Qld), s 72;
Trustees Act 1962 (WA), s 71; Trustee Act 1898 (Tas),
s 27(2). See, in relation to the Territories, Trustee Act 1893
(NT), s 26; Trustee Act 1925 (ACT), s 59(4). See also
Ford, "Trading Trusts and Creditors' Rights" [1981] MelbULawRw 1; (1981) 13 Melbourne University
Law Review 1 at 4 fn 10.
[160] In re Suco Gold Pty Ltd
(In liq) (1983) 33 SASR 99 at 104, citing Worrall v Harford [1802] EngR 342; (1802) 8
Ves Jun 4 at 8 [32 ER 250 at 252]. See also Ford, "Trading Trusts and
Creditors' Rights" [1981] MelbULawRw 1; (1981) 13 Melbourne University Law Review 1 at 4.
[161] See fn 159 above.
[162] Ford, "Trading Trusts and
Creditors' Rights" [1981] MelbULawRw 1; (1981) 13 Melbourne University Law Review 1 at 4. A
court of equity may authorise the sale of assets held by the trustee so as to
satisfy the right of reimbursement or exoneration:
Buckle [1998] HCA 4; (1998) 192 CLR
226 at 247 [50]. See also Heydon and Leeming, Jacobs' Law of Trusts
in Australia, 8th ed (2016) at 513 [21-04].
[163] Heydon and Leeming,
Jacobs' Law of Trusts in Australia, 8th ed (2016) at 516 [21-07].
[164] Jones [2018] FCAFC 40; (2018) 260 FCR
310 at 320 [34], citing Vacuum Oil [1945] HCA 37; (1945) 72 CLR 319 at 335.
[165] [2018] FCAFC 40; (2018) 260 FCR 310, in
particular at 320-321 [35]-[36], 321 [39], 321-322 [42] and 331 [76].
[166] Jones [2018] FCAFC 40; (2018) 260 FCR
310 at 324-325 [49].
[167] Jones [2018] FCAFC 40; (2018) 260 FCR
310 at 332 [87].
[168] [1979] HCA 61; (1979) 144 CLR 360 at
369-370.
[169] [1998] HCA 4; (1998) 192 CLR 226.
[170] Buckle [1998] HCA 4; (1998) 192 CLR
226 at 246-247 [48]- [51] (footnotes omitted).
[171] [2009] HCA 32; (2009) 239 CLR 346 at
358-359 [43], 359 [47]; [2009] HCA 32.
[172] [2005] HCA 53; (2005) 224 CLR 98 at 121
[51]; [2005] HCA 53.
[173] [1998] HCA 4; (1998) 192 CLR 226 at 246
[48], citing Dodds v Tuke (1884) 25 Ch D 617 at 619.
[174] See Bruton [2009] HCA 32; (2009) 239
CLR 346 at 358-359 [43]; Sykes and Walker, The Law of Securities, 5th ed
(1993) at 192, 203; Heydon and Leeming, Jacobs' Law of Trusts in
Australia, 8th ed (2016) at 513 [21-04].
[175] Sykes and Walker, The Law
of Securities, 5th ed (1993) at 3.
[176] See Jones [2018] FCAFC 40; (2018) 260
FCR 310 at 329 [69], 331 [79]; Re Amerind Pty Ltd; The Commonwealth
v Byrnes and Hewitt [2018] VSCA 41; (2018) 54 VR 230 at 287-288 [271]- [273].
[177] See Re Independent
Contractor Services (Aust) Pty Ltd (In liq) [No 2] [2016] NSWSC 106; (2016) 305 FLR 222 at 231
[24].
[178] [2005] HCA 53; (2005) 224 CLR 98 at 121
[51], citing Buckle [1998] HCA 4; (1998) 192 CLR 226 at 246 [48]. See also Dodds
(1884) 25 Ch D 617 at 619; Jennings v Mather [1902] 1 KB 1 at 9;
Heydon and Leeming, Jacobs' Law of Trusts in Australia, 8th ed (2016) at
513 [21-04].
[179] Protecting workers' claims
is also a matter of international obligation: see Protection of Workers'
Claims (Employer's Insolvency)
Convention (1992).
[180] See Jones [2018] FCAFC 40; (2018) 260
FCR 310 at 319 [29]. See also Leeming, "Trustees' Rights of Indemnity,
Insolvency and Statutory Distributions to Preferred Creditors" (2018) 92
Australian Law Journal 503 at 503.
[181] [1983] VicRp 52; [1983] 1 VR 561 at 564.
[182] (1983) 33 SASR 99 at 105,
107-110.
[183] [2018] FCAFC 40; (2018) 260 FCR 310 at
336-337 [101].
[184] See Jones [2018] FCAFC 40; (2018) 260
FCR 310 at 323 [45].
[185] Corporations Act,
s 561(a).
[186] Jones [2018] FCAFC 40; (2018) 260 FCR
310 at 324-325 [49].
[187] See Jones [2018] FCAFC 40; (2018) 260
FCR 310 at 334-335 [97].
[188] See In re Suco Gold
(1983) 33 SASR 99 at 105.
[189] See Jones [2018] FCAFC 40; (2018) 260
FCR 310 at 320 [34], citing Vacuum Oil [1945] HCA 37; (1945) 72 CLR 319 at 335.
[190] See Jones [2018] FCAFC 40; (2018) 260
FCR 310 at 337 [103].
[191] See Jones [2018] FCAFC 40; (2018) 260
FCR 310 at 337 [103].
[192] Read with the definition of
"controller" in s 9 of the Corporations Act.
[193] Read with s 90-20 of
Sch 2 and the definition of "officer of a corporation" in s 9 of the
Corporations Act.
[194] Akers v Deputy
Commissioner of Taxation [2014] FCAFC 57; (2014) 223 FCR 8 at 41 [135].
[195] [2018] FCAFC 40; (2018) 260 FCR 310 at 339
[108].
[196] (1983) 33 SASR 99.
[197] [2018] FCAFC 40; (2018) 260 FCR 310 at 339
[108].
[198] By the Insolvency Law
Reform Act 2016 (Cth).
[199] See Ample Source
International Ltd v Bonython Metals Group Pty Ltd (In liq), in the matter of
Bonython Metals Group Pty Ltd (In liq) [No
8] [2018] FCA 1614 at [89]- [93].
See also Preston, in the matter of Sandalwood Properties Ltd (2018) 36
ACLC 18-016 at 251 [45]; Re Kelly (2018) 16 ABC (NS) 148 at 151-153
[31]-[36].
[200] Corporations Act,
s 556(2).
[201] (1983) 33 SASR 99.
[202] In re Suco Gold
(1983) 33 SASR 99 at 110.
[203] In re Suco Gold
(1983) 33 SASR 99 at 110.
[204] In re Suco Gold
(1983) 33 SASR 99 at 110.
[205] See Corporations Act,
s 447A(4)(c)-(d).
[206] Jones [2018] FCAFC 40; (2018) 260 FCR
310 at 339 [108].
[207] [1998] HCA 4; (1998) 192 CLR 226 at
246-247 [48]- [50].
[208] (2017) 253 FCR 46 at 82
[98], 88 [119], [121].
[209] Personal Property
Securities Act, s 340(5)(b).
[210] Personal Property
Securities Act, s 340(5)(c).