The High Court of Australia will be handing down judgment in the Amerind appeal this Wednesday 19 June 2019. Watch this space.

In the meantime, for my review and analysis of the Victorian Court of Appeal decision in Amerind which is the subject of this appeal see here.

For my article considering the Full Federal Court decision in Killarnee and the landscape for liquidating corporate trustees of trading trusts in light of both Amerind and Killarnee see here.

For those who want more, the submissions that have been filed for each of the appellant (creditor Carter Holt Harvey Woodproducts Australia Pty Ltd), the first respondent (the Commonwealth of Australia, which advanced $3.8m for former employees of the company under FEGS) and the second respondent (the Receivers of Amerind Pty Ltd (Receivers & Managers appointed)(in liquidation)) may be read on the High Court website here.

For now, I note that the submissions for the appellant creditor identified the following three issues for consideration in the appeal –

Whether the “property of the company” of a corporate trustee under s 433(3) of the Corporations Act 2001 (Cth) includes not only the trustee’s right of indemnity but also the underlying assets to which the trustee company can have recourse. The precise nature of, and the limitations upon, a trustee’s right of indemnity where the trustee seeks exoneration in respect of unmet trust liabilities, in particular in the context of the insolvency of the trustee. Whether a corporate trustee’s right of indemnity from trust assets is “property comprised in or subject to a circulating security interest” for the purposes of s 433(2) of the Corporations Act.

The appellant submitted, inter alia, that –

Properly understood, a trustee’s right of indemnity, especially the ‘exoneration arm’ of the right of indemnity, is no more than a right to have trust assets applied to meet trust debts. It confers upon the trustee no interest in the trust assets themselves, or the proceeds thereof.

A trustee’s right of indemnity is not subject to s 433(2) of the Corporations Act because it is not a “circulating asset” and hence is not property which is “comprised in or subject to a circulating security interest”.

The appellant submitted that if either of these challenges be upheld, the Court of Appeal’s decision cannot stand.

The Commonwealth identified two issues for consideration in the appeal –

On the basis that the trustee’s right of indemnity gave it a beneficial interest in the assets of the trust – was that interest “property of the company” within the meaning of s 433(3)? On the basis that s 433(3) applies to property coming into the hands of a receiver who is appointed by a debenture holder ‘secured by a circulating security interest’ – was it necessary that the trustee’s right of indemnity itself be ‘property comprised in or subject to a circulating security interest’? If so, was the trustee’s right of indemnity such property?

The Commonwealth submitted inter alia that –

Sections 433, 556 and 561 of the Corporations Act give statutory priority to employees’ claims in insolvency. Insolvency law is statutory and primacy must be given to the relevant statutory text. That statutory priority has been recognised since 1883 in the case of corporate insolvency. The compelling reasons for the statutory priority of employees claims is well known. It is a strong thing to deprive employee creditors of their statutory priority merely because their employer had acted as a trustee.

There are no non-trust creditors. There is only one trust. This case does not give rise to the question of whether creditors of the company who are not ‘trust creditors’ may be paid from the proceeds of realisation of trust assets.

A trustee’s right of indemnity (whether by way of reimbursement or exoneration) confers on the trustee an interest in the trust assets which is a proprietary, beneficial interest, and takes priority to the interests of the beneficiaries of the trust. This submission relies on several previous High Court decisions, including Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 and Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226.

(1979) 144 CLR 360 and (1998) 192 CLR 226. What matters in the Personal Property Securities Act‘s interaction with the Corporations Act is the nature of the security held by the secured party, not the nature of the interest in the personal property held by the grantor. Even if it was necessary to characterise the trustee’s right of indemnity as an asset subject to a circulating security interest, it was such an asset.

It follows that, as the Court of Appeal held, s 433(3) was engaged. The Court of Appeal’s decision should be upheld.

We await Wednesday’s judgment with interest.