A recent case of the High Court has clarified a key principle of the Corporations Act. Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth [2019] HCA 20, otherwise referenced as the Amerind case, raises implications that Australian employees’ entitlements must be given priority in an insolvency. This is irrespective of whether their employer is a company trading in its capacity as trustee or its own right.

In the matter, the court determined that a corporate trustee’s proprietary interest in trust assets is defined as “property of the company” under s433 of the Corporations Act; a definition that is applicable in liquidation contexts. This means that circulating asset realisations made by a corporate trustee must be distributed in accordance with the priorities of receivers and liquidators of the Corporations Act. This clarification cements employees in a position of priority to secured creditors in relation to circulating asset realisations.

The ruling has removed the veil of ambiguity in relation to how statutory priorities set out in the Corporations Act apply to the distribution of trust assets; where the employing entity is a corporate trustee.

Notably, the High Court further resolved that where the indemnity of trustees against trust assets is exercised by the “right of exoneration”, (explained in last week’s E-Alert), the proceeds from exercising that right cannot be used to meet non-trust liabilities. However, the court conceded that these issues are complex and may require assessment on a case by case basis.

 

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