High Court provides certainty for corporate trustees: Amerind

On 19 June 2019, the High Court delivered its judgment in one of the most hotly anticipated insolvency judgments this year, the Amerind appeal: Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth.1

The High Court unanimously dismissed the appeal, upholding the Victorian Court of Appeal’s decision and confirming (although for differing reasons) that:

  • A trustee’s right of indemnity or exoneration falls within the broad definition of ‘property of the company’ for the purpose of section 433 of the Corporations Act 2001 (Cth) (Act).
  • To the extent that trust assets realised by the insolvent corporate trustee are ‘circulating assets’, those proceeds must be distributed in accordance with the statutory priorities under sections 433, 556 and 560 of the Act.
  • The proceeds of trust assets realised under a trustee’s right of exoneration may only be applied in satisfaction of trust liabilities to which the right of indemnity relates. Trust assets cannot be applied to non-trust debts.

The decision provides much-needed clarity, and a practical approach, regarding distribution of trust assets in the insolvency context (particularly in light of conflicting state authorities).

However, insolvency practitioners must remain vigilant when assessing their distribution obligations under the Act. This is particularly so for insolvent administrations involving complex trading trusts, fund managers, or corporate trustees who simultaneously conduct business in their own capacity.


Amerind Pty Ltd (Amerind) carried on a business solely in its capacity as trustee of the Panel Veneer Processes Trading Trust. To finance the trust’s business activities, Amerind maintained credit facilities with the Bendigo and Adelaide Bank (Bank), which took security (including a general security agreement (Security Deed)) over Amerind’s assets. Amerind defaulted, and the Bank subsequently terminated the facilities and appointed receivers and managers (Receivers) to recover the debt owed to the Bank. The Bank’s debt was satisfied from asset realisations, leaving a receivership surplus of $1,619,108 (Surplus).

In assessing distribution of the surplus, the Receivers were confronted with competing claims in relation to the Surplus. Relevantly:

  • Carter Holt Harvey, the appellant, which claimed to be a secured creditor ranking behind the Bank; and
  • the Commonwealth of Australia (via the Fair Entitlements Guarantee Scheme) (FEG), the first respondent, which had paid $3.8 million in accrued wages and entitlements to former employees of the Amerind.

The Receivers applied to the Court for directions on how to distribute the Surplus.

Decision at First instance

At first instance, Justice Robson in the Supreme Court of Victoria held that the trustee’s right of indemnity is not personal property, but rather held on trust for the benefit of the trust creditors. Therefore, it is not ‘property of the company’ within the meaning of the Act. In the alternative, Justice Robson reasoned that, even if the trustee’s right of indemnity was ‘property of the company’ for the purpose of section 433 of the Act, it was not ‘comprised in or subject to a circulating security interest’ created by the Security Deed. Accordingly, the statutory priorities of distribution under the Act (including the priority for employees) did not apply. The result of Justice Robson’s judgment was that FEG would lose its statutory priority and rank pari passu with other unsecured creditors, behind the secured creditors.

Decision on Appeal

The Court of Appeal overturned the decision of Justice Robson and re-established the application of the Act’s statutory priorities to trust assets. Considering the reasoning of the High Court’s decision in Octavo,2 as well as the superior court decisions in Re Suco Gold3 and Re Enhill4, the Court accepted that a trustee’s right of exoneration created a proprietary interest in the trust asset which passed to the liquidator. In those circumstances, the statutory priorities of distribution under the Act must be followed when distributing the proceeds of those realised trust assets.

Decision by the High Court

While the Court was unanimous in dismissing the appeal, three separate judgments were delivered. The divergence in the Court’s reasoning provides an insightful exposition of the history, nature and application of a trustee’s right to indemnity. However, from a practical perspective, each judgment arrives at the same conclusion.

Key Issue 1: Is the trustee’s right of indemnity, and the proceeds of the trust assets realised, ‘property of the company’ for the purpose of section 433 of the Act?

The High Court found that the right of indemnity and exoneration was ‘property of the company’ and therefore that the statutory priorities under the Act applied. The divergence lay in what precisely the Court considered constituted the ‘property of the company’ for the purposes of section 433 of the Act.

In the joint judgment of Chief Justice Kiefel, Justice Keane and Justice Edelman, it was reasoned that the trustee’s right of exoneration itself was a circulating asset and therefore was ‘property of the company’ coming into the hands of the Receiver for the purposes of section 443 of the Act.

In a second joint judgment, Justice Bell, Justice Gageler and Justice Nettle disagreed that the trustee’s right of indemnity itself was a circulating asset. Instead, they held that the trust assets themselves (of which the trustee had a beneficial interest in through it rights of exoneration) determined the nature of the asset which was the relevant ‘property of the company’. Because the relevant trust assets were circulating, they remained circulating assets in the trustee company’s hands. This reasoning was endorsed by Justice Gordon, who similarly concluded that the trustee’s right of indemnity created a proprietary interest in the trust assets, and it was that interest that was the relevant ‘property of the company’.

Key issue 2: Does the statutory priority in section 556 of the Act apply?

Yes. Justice Bell, Justice Gageler, Justice Nettle and Justice Gordon held the statutory order of priority for the payment of unsecured creditors in section 556 of the Act applies to the distribution of the proceeds of realisation of a trustee’s right of indemnity. By doing so, they accepted that the reasoning in Re Suco Gold should be preferred over Re Enhill. Whilst the judgment of Chief Justice Kiefel, Justice Keane, and Justice Edelman did not expressly state this, their reasoning also leads to that natural conclusion.

It likely follows that court approval is not required for a liquidator of a trading trust to pay properly approved remuneration and costs from the trust fund that were properly incurred in acting as liquidator.

It remains to be seen how confident liquidators will be to rely upon this and the extent to which court approval may still be sought. Liquidators also still need a power of sale in respect of trust assets if there are insufficient trust funds to draw their remuneration and costs from.

Key Issue 3: Can the trust assets of an insolvent corporate trustee be used to satisfy non-trust (or general) liabilities of the corporate trustee?

Although it was not strictly required for determination, the Court considered whether the proceeds of realised trust assets (through the right of indemnity) could be distributed in satisfaction of the corporate trustee’s non-trust liabilities.5

The Court unanimously held that proceeds realised from trust assets could only be used to satisfy trust liabilities which gave rise to the trustee’s right of indemnity. The Court held that the Victorian decision in Re Enhill6 (which in effect permitted trust assets to be applied to creditors generally in a liquidation) was wrong. Instead, the approach adopted in the South Australian decision of Re Suco Gold7 was correct; a trustee's right of exoneration could only be applied in satisfaction of the trust liabilities to which the right of exoneration relates.


The decision will be welcomed by the insolvency profession, as it provides practitioners with a clear and practical way forward when dealing with trust assets. From a public policy perspective, the decision is consistent with the principle that employees of an insolvent company ought to enjoy a priority to other creditors for their unpaid salary and leave entitlements.

Although not relevant in the present appeal, the Court recognised the difficulties faced by practitioners administering an insolvent corporate trustee which is the trustee of multiple trusts. The Court indicated that practitioners ought to follow the approach set out by Cheif Justice King in Re Suco Gold, by keeping separate funds. If there remains uncertainly, the insolvency practitioner should apply to the Court for directions.

Finally, the Court noted that its decision did not resolve all issues in the insolvent corporate trustee context, including competing priorities between trust creditors (after payment of the statutory priorities), and the application of the doctrine of marshalling (which is where a trust creditor has access to more than one pool of assets). Given the proliferation of the corporate trading trust as vehicle for undertaking commerce, it is only a matter of time before these issues are considered by a superior court.

1[2019] HCA 20
2Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360
3Re Suco Gold Pty Ltd (in liq) (1983) 33 SASR 99
4Re Enhill Pty Ltd [1983] 1 VR 561.
5In the present appeal, all creditors were ‘trust creditors’ including the appellant, and the Commonwealth through its right of subrogation of employee entitlements under section 556 of the Act.
6Re Enhill Pty Ltd [1983] 1 VR 561.
7Re Suco Gold Pty Ltd (in liq) (1983) 33 SASR 99


You might be also interested in...

Banking & Finance | 25 Jul 2019

Mortgage set aside by the Supreme Court of Victoria for unconscionable conduct

A mortgage-backed loan by a non-bank lender was recently set aside by the Supreme Court of Victoria.

Financial Services | 19 Jun 2019

Financial Services in Focus – Issue 26

Financial Services in Focus is a fortnightly round-up of legal and regulatory developments in the financial services sector in Australia…