By Darrin Mitchell, Senior Associate at Matthews Folbigg in the Insolvency, Restructuring and Debt Recovery Group.
The Australian legal system has of late become a confusing morass of conflicting judgments on the order of priority of payment of creditors of insolvent trustees from trust assets. This has a significant impact on creditors, particularly employees, whose priority payment is no longer assured, by quirk of the structuring advice given to an employer without their knowledge or consent. Well the landscape was twisted again recently with a decision today by a five member panel of the Victorian Court of Appeal.
A number of States in the Commonwealth of Australia have issued judgments that differ in how to apply trust assets for trust creditors. In New South Wales, the 2016 decision of Brereton J in Re Independent Contractor Services (Aust) Pty Ltd (in liq) (No 2) held that the property of the trust was (perhaps unsurprisingly on one view) trust property. More surprisingly, his Honour found it was NOT company property distributable in the priorities provided for under section 556 of the Corporations Act 2001. His Honour relied upon the on the 1983 South Australian Supreme Court decision by then Chief Justice King in Re Suco Gold who held that trust assets are to be applied in accordance with the terms of the trust.
The decisions in New South Wales and South Australia were in direct contrast with the earlier 1983 Victorian Court of Appeal decision in Re Enhill Pty Ltd which held that trust assets are property of the corporate trustee and subject to the Corporations Act.
In a somewhat surprising decision delivered in 2017 by Justice Robson of the Supreme Court of Victoria in Amerind Pty Ltd (Receivers and Managers Appointed) (In Liquidation), His Honour saw fit to follow the New South Wales and South Australian single Judge decisions rather than his own State’s Court of Appeal.
On appeal the Victorian Court of Appeal in Re Amerind Pty Ltd (Receivers and Managers Appointed) (In Liquidation)  VSCA 41 rejected the decision of Justice Robson and held that a right of indemnity from trust assets, is property of the company which is to be applied under the Corporations Act. This decision will require consideration but is consistent with the Court’s 1983 decision in Re Enhill Pty Ltd and goes against the single judge decisions in both New South Wales and South Australia.
The decision of the Victorian Court of Appeal would appear ripe for an appeal to the High Court which would do all practitioners a huge favour in settling the 35 year judicial debate on the trust asset labyrinth. Stay tuned …
The above summary is designed to give practitioners a general idea of the recent Court decision that may impact upon them. Any specific advice on insolvency or the use of trust assets or otherwise can be discussed by contacting the team at Matthews Folbigg.
The Judgment of the Court of Appeal can be found here
If you would like more information or advice in relation to insolvency, restructuring or debt recovery practice and procedure, contact Darrin Mitchell on 02 9806 7428 or firstname.lastname@example.org or a Principal of the Matthews Folbigg Insolvency, Restructuring & Debt Recovery Group:
Jeffrey Brown on (02) 9806 7446 or email@example.com
Stephen Mullette on (02) 9806 7459 or firstname.lastname@example.org