It can be legally difficult to determine what the law is when a significant legal issue is on appeal, leaving the issue uncertain in other matters where the issue arises until the appeal is heard and resolved.
That is the case in relation to the insolvency of trading trustee companies, with decisions from the Victorian Court of Appeal – Amerind[1] – and the Full Federal Court – Killarnee,[2] not quite aligning. The broad issue concerns the question whether the priority regime for creditors provided for by Corporations Act, ss 556 and 433 are to be applied in respect of the trust assets of a company which operated as a corporate trustee.
Those decisions were given on 28 February 2018 and 21 March 2018 respectively. On 17 August, in Amerind, the High Court granted leave to appeal but[3] the parallel decision in Killarnee was not the subject of any special leave application.
In the High Court, a timetable has been met in Amerind but the case awaits listing for hearing.[4]
While the High Court’s hearing of the matter, and then its decision, are pending, trial courts have to carefully tread and decide whether the issue before them is one that is in doubt pending the High Court’s decision, or not. It depends on how central the issue is for any trial judge. Here are some recent approaches.
To proceed
Lane v DCT
Justice Roger Derrington was confronted with this in a recent bankruptcy matter on which he had given a decision in August 2017[5] but which required further issues to be determined – in relation to the ATO, as to the nature of the funds in the hands of the trustees consequent upon the recovery of funds from the ATO as an unfair preference. A decision in favour of the trustees’ remuneration and expenses was given in the meantime.[6] As well, an appeal against that decision to the Full Federal Court was filed but then deferred pending the Victorian Court of Appeal and then the High Court decision.[7]
All this gave rise to some ‘difficulties’. As the Judge said:
‘ … in the decision in Amerind, the right of exoneration is now to be regarded as an asset available to be used to discharge all debts of the trustee. On that basis, regardless of whether the money received by the Bankruptcy Trustees in this matter is regarded as the replenishment of funds which are subject to the right of exoneration, their use is not limited to meeting trust debts. This, of course, necessarily places the Bankruptcy Trustees in a difficult position. They are, as between themselves and the Commissioner, bound by the earlier determination in this matter unless and until it is set aside. On the other hand, the decision of the five member bench in Amerind might suggest an alternative course of action but that decision, is itself, subject to appeal’.
Nevertheless, and in a tart comment about recent media and other issues, Justice Derrington proceeded to determine the issue before him.
He expressed perhaps feigned concern that this might be seen as a
‘vainglorious and unproductive use of judicial time and resources. However, the current public zeitgeist, apparently generated by the utterances of erstwhile judicial officers, emphasises the temporal aspects of the production of judgments rather than their quality, utility or effectiveness. For that reason, the further deferral of judgment until the legal position is clarified is not warranted lest it engenders the usual uninformed, media criticism’.
He proceeded to determine the issue, based on an analysis of s 122 Bankruptcy Act – that it ‘operates without the intervention of the bankruptcy trustee or an order of the Court, such that … the preference payment is avoided on the making of the sequestration order’; and but ‘as a matter of practical reality, the payment is defeasible and remains effectual until the bankruptcy trustee determines to avoid it’; if the trustee ‘determines not to take action the transfer is treated as being valid’.
Ross v Manpak Holdings; Re Humphreys
Another Judge, also from the Federal Court, noted the High Court appeal but on the particular issue[8] he considered that Re Amerind accorded with Killarnee, and he relied on Amerind, despite its pending appeal. But beyond that, he relied upon the
‘Full Court’s thorough and detailed reasoning in Killarnee. While Killarnee may well be the subject of consideration by the High Court in Case M137/2018, it remains the only Full Court decision of this Court on the subject and one which is not the subject of special leave’.
To defer
In the matter of MJM(WA) Enterprises
But where a matter came directly within the issue to be determined by the High Court, Justice Brereton decided to defer his decision, but was able to allow the liquidator his remuneration.[9]
As he said, on the basis that the High Court may authoritatively resolve the controversy
‘as to whether or not the priority regime for creditors provided for by Corporations Act, s 556 is to be applied in respect of the trust assets of a company which operated as a corporate trustee, the Liquidator invited me to defer making any orders in respect of that portion of the application, and instead make a direction, pursuant to section 90-15 of the Insolvency Practice Schedule, that the plaintiff would be justified in distributing the assets of the trust in payment first of his remuneration as approved above, and adjourn the balance of the proceedings in relation to the terms and basis upon which the trust assets are to be distributed among the admitted creditors of the company acting as trustee, on the basis that I would be kept informed of the progress and outcome of the application for special leave (and, presumably, any appeal if special leave be granted).
Such a course would enable the Liquidator to progress the liquidation, without unduly delaying its completion – as the creditors have requested the Liquidator to consider action against the former directors’.
The High Court? or law reform?
The High Court Chief Justice has spoken of the Court’s workload in early 2019.[10] The issue may therefore remain to careful assessment for some time yet. At the same time, the delivery of trial judge decisions can’t wait too long.
There is also the issue that any decision of the High Court may not resolve the uncertainty at all, or in part. Law reform may be required. That raises other problems.
[1] Commonwealth v Byrnes [2018] VSCA 41.
[2] Jones (liq) v Matrix Partners Pty Ltd, in the matter of Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCA 40.
[3] Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth of Australia [2018] HCATrans 156 (17 August 2018)
[4] See Case M137/2018
[5] Lane (Trustee), in the matter of Lee (Bankrupt) v DCT [2017] FCA 953 (18 August 2017)
[6] Lane (Trustee), in the matter of Lee (Bankrupt) v DCT (No 2) [2017] FCA 1112 (14 September 2017)
[7] Lane (Trustee), in the matter of Lee (Bankrupt) v DCT (No 3) [2018] FCA 1572
[8] Ross v Manpak Holdings Pty Ltd [2018] FCA 1548. The Judge in Re Humphreys [2018] QSC 241 was also able to decide the matter around the High Court appeal.
[9] In the matter of MJM(WA) Enterprises Pty Ltd (in liq) [2018] NSWSC 944. See also Hurry up and wait – liquidator in holding pattern while Re Amerind decided: ‘By locking in remuneration now, the liquidator was able to begin investigating recovery actions and keep the liquidation moving along – a better outcome for all concerned’. Corrs Chambers Westgarth, 13 July 2018.
[10] News: Court’s workload in March and April 2019 is ‘extraordinarily large’, Opinions on High, 23 November 2018.
