Justice Robson has delivered his decision on an application by receivers and managers for directions as to, among other things, their obligations to pay preferential debts under the Corporations Act from the surplus generated by their trading-on of a business and other recoveries by their appointing bank.
Amerind Pty Ltd had operated as a trading trust. His Honour held in essence that trust property is not susceptible to the statutory priority regime in s 556 of the Corporations Act 2001 (Cth). Separately, his Honour also held that a trustee's right of indemnity is not subject to receivers' obligations under s 433 of the Corporations Act to pay employee entitlements in priority out of assets subject to a circulating security interest (a recent concept broadly in line with the former 'floating charge'). This judgment is a landmark Victorian ruling signalling a departure from the controversial but well-established precedent set by Re Enhill Pty Ltd . In so holding, his Honour adopted the construction of the Corporations Act outlined in the 2016 decision of Brereton J in Re Independent Contractor Services (Aust) Pty Ltd (in liq) (No 2) . The decision in Re Amerind has significant implications for the protection of employee creditors of insolvent companies who acted as trustees.
Amerind Pty Ltd was the trustee of the Panelveneer Processors Trading Trust, which operated a business that manufactured and distributed decorative and architectural finishes. In March 2014, administrators were appointed by the director of Amerind and receivers were appointed by the company's principal financier, Bendigo and Adelaide Bank. The receivers traded on after their appointment and generated a net surplus, with the bank's debt being paid out by the amounts generated by the receivers and other recoveries by the bank. At the appointment date, Amerind had 174 staff. Key issues examined were whether the receivership surplus could be classified as trust or company property and whether the priority regimes for payment of creditors set out in the Corporations Act required the receivers to pay preferential debts from the surplus before paying it into Court to be the subject of various competing claims.
1. Was the receivership surplus trust property?
His Honour accepted that Amerind had operated as a corporate trustee and thus the assets comprising the surplus were properly characterised as trust property.
2. Was the surplus subject to Corporations Act priority regime?
It being the case that the surplus was trust property, the question then became whether it was susceptible to the statutory priority regime in the Corporations Act. The Commonwealth, liquidator and the receivers argued that even if the surplus was trust property, the trustee's right to be indemnified for trust debts from that trust property was a personal asset of the corporate trustee and was thus "property of the company" rather than trust property. This would have meant that the surplus would be subject to the creditor priority regime set out under ss 433 and 556 (and related provisions) of the Corporations Act.
'I reject the submission that s 433(2) applies to trust property if it is subject to a circulating security interest. In my opinion, the provision is referring to an equitable or legal interest belonging to the company. In my opinion, it does not refer to a legal or equitable interest belonging to somebody else': .
'In my opinion […] the proper course for me is to adopt the reasoning of Brereton J in Re Independent, being that s 556 of the Corporations Act only applies to property of the company and does not apply to trust assets, that the trustee's right of indemnity is not property of the company, and that where there are multiple creditors of the trust, the creditors share pari passu in the right to be subrogated to the trustee's equitable lien to enforce the trustee's indemnity. Similar reasoning also applies to s 433': .
The Commonwealth, liquidator and the receivers had relied on Re Enhill, a 1983 decision of the Full Court of the Supreme Court of Victoria, to support their arguments, but Robson J stated that 'Re Enhill has not been followed in the Federal Court or in other states of Australia' (), noting that the case had faced considerable legal and academic criticism. Re Enhill was also distinguished on the basis that it concerned the interpretation of the long-repealed Companies Act 1961 (Vic) and was therefore of little assistance in construing the Corporations Act: .
Although Re Enhill and the 1983 decision of the Full Court of the Supreme Court of South Australia in Re Suco Gold  were consistent in holding that the statutory priority applied to trust property, there were key differences between them. To the extent of the inconsistency, his Honour preferred Re Suco Gold; '[i]nsofar as Re Suco Gold is consistent with the line of cases leading to the conclusion that the trustee's right of indemnity is trust property available only to meet trust liabilities […] that decision [is] sufficiently persuasive to extend its application to the Corporations Act': . However, his Honour cautioned that '[a]s to whether the priority regimes apply to trust property, [he] would not extend the application of Re Suco Gold': .
Importantly, his Honour held that the right of indemnity is itself trust property and not a personal property interest: , . In light of his Honour's other conclusions, this meant it could not be captured by s 433(2).
3. Was the surplus otherwise subject to s 433?
Robson J further held that if (contrary to his conclusion) trust property was "property of the company" for the purposes of the statute, s 433 of the Corporations Act did not otherwise apply to it. This conclusion involved the rejection of the argument that the trustee's right of indemnity was subject to a circulating security interest within s 433: . His Honour also rejected the argument that the right of indemnity and associated lien could fall within the definition of a floating charge: .
'I find that the trustee's right of indemnity is not a circulating security interest under the PPSA, nor is it a floating charge under s 51C of the Corporations Act. Accordingly, if contrary to my finding, the trustee's right of indemnity is property of the company, then I am not satisfied that it is also a circulating security interest and thus s 433(3) of the Act is not engaged': .
Overall, every attempt to characterise the right of indemnity or trust assets as property of Amerind subject to the Corporations Act failed.
His Honour's judgment also dealt with a range of other issues concerning the operation of the Personal Property Securities Act 2009 (Cth), some of which had never before been considered. However, the key aspect is the conclusion that the statutory priority does not apply to insolvent corporate trustees.
Re Amerind confirms the recent trend in the law that where a company operates as a trustee, employees (and the Commonwealth, which is subrogated to their rights to the extent it has paid out their entitlements under the Fair Entitlements Guarantee scheme) will not enjoy the statutory priority in the Corporations Act but will instead rank equally with other unsecured creditors. Prior to Re Independent, the decisions in Re Enhill and Re Suco Gold were regarded as controversial but nonetheless established intermediate appellate court authority that the statutory priority applies to insolvent corporate trustees. The decision in Re Amerind is by far the most detailed consideration of the continuing authority of Re Enhill and Re Suco Gold. The rejection of the central thesis of those decisions, being that the statutory priority applies, is a significant blow for employees of companies that are structured in this way, a long established and relatively common device for tax purposes. This decision also has a significant effect on the ability of the Commonwealth to recover amounts it has paid under the FEG scheme to employees of insolvent trading trusts. Since the delivery of judgment and the making of final orders , the Commonwealth has commenced an application for leave to appeal, so we can expect further clarity around these interesting issues in the months to come.
  1 VR 561 ('Re Enhill').
 (2016) 305 FLR 222 ('Re Independent').
 See Re Amerind Pty Ltd (No 2)  VSC 169.