One ship has berthed – the insolvency and trust law decision in Amerind

The Victorian Court of Appeal has resolved, for the moment, the complex issue of how a corporate trustee’s right of indemnity is to be dealt with upon a winding up, finding, contrary to the trial decision, that the Corporations Act and its insolvency priorities apply. See Commonwealth v Byrnes & Hewitt [2018] VSCA 41. 

Significantly for the Commonwealth in its support of payments of employment entitlements under FEG, the outcome is important. The Commonwealth had submitted that the trial judge’s holding

“did not accord with the policy of, and the parliamentary intention reflected by, those sections. The company’s employees consequently lost the priority they would have enjoyed under s 433(3).  They were instead ranked pari passu with all other unsecured trust creditors simply because the company conducted its business as a trustee rather than its own right.  Such considerations apply with equal force to ss 556 and 561.  

The Court, of 5 justices, agreed, but not until after saying that the issue was one of

“long standing controversy.  Judgments of first instance and intermediate appellate courts have reached divergent conclusions.  There have been High Court judgments on related issues which are significant”.

If this remains the law, it will not disrupt what seems to have been practice over the years, even if in recent times the ‘controversy’ has been more actively raised.

The issue left unresolved, was whether the priorities applied only to trust creditors but not non-trust creditors; or to both. There were no trust creditors in Amerind so it was unnecessary to decide, but the Court indicated that Re Enhill, which held that all creditors were subject to the s 556 priorities, should be followed, in Victoria at least; cf Suco Gold. 

The Full Federal Court is deciding a similar issue in Killarnee. See Ships in convoy, or on a collision course 

The Victorian Supreme Court’s decision is more than persuasive.

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