the Liquidator's Remuneration
32 The third and fourth directions sought by the Liquidator were that he would be justified in:
distributing the assets of the Maz Trust in accordance with the priorities set out in s 556(1) of the Act; and
applying the Settlement Fund first in relation to the Liquidator's remuneration, costs and expenses as priority creditors under s 556(1)(dd) and (de) of the Act.
33 Section 556 of the Act sets out a priority regime for payments to be made in a winding up to certain unsecured creditors. Relevantly, it affords some priority to "any other expenses (except deferred expenses) properly incurred by a relevant authority" which relevantly includes a liquidator of a company and "deferred expenses" which are expenses incurred by a relevant authority. Deferred expenses include remuneration or fees for services payable to the relevant authority, or expenses incurred in respect of supply of services to the relevant authority by various specified parties, or expenses incurred by the relevant authority in respect of the supply to it of certain services: see s 556(1)(dd), (de) and subs (2).
34 The Liquidator submitted that his remuneration and expenses can be paid out of the Settlement Fund, being the "property of the company", ahead of the claims of any unsecured creditors:
because they were approved by creditors on 21 December 2017 under s 60-10(1)(a) of Sch 2 to the Act which permits a determination to be made by resolution of creditors specifying remuneration that an external administrator of a company is entitled to receive for necessary work properly performed in the external administration. The evidence establishes that at the creditors' meeting held on 21 December 2017, resolutions were passed approving the Liquidator's remuneration for work done totalling $120,000 and his internal disbursements necessarily incurred in the sum of $2,500; and
as this case involves a former trustee company which acted solely as the trustee of a trust, s 556 of the Act directs the distribution of property without further consideration.
35 The Liquidator sought directions because of what he described as the uncertainty resulting from the decisions in Commonwealth v Byrnes (2018) 354 ALR 789; [2018] VSCA 41 (Re Amerind) and Jones (Liquidator) v Matrix Partners Pty Ltd, in the matter of Killarnee Civil & Concrete Pty Ltd (in liq) (Re Killarnee) (2018) 354 ALR 436; [2018] FCAFC 40. He submitted that the following propositions can be distilled from those authorities:
the right of indemnity by way of exoneration is "property of the company" for the purposes of the Act;
the provisions of the Act, in particular, s 555 and s 556 must therefore apply;
the distinction between Re Enhill Pty Ltd [1983] 1 VR 561 (Re Enhill) and Re Suco Gold Pty Ltd (in liq) (1983) 7 ACLR 873; (1983) 33 SASR 99 (Re Suco Gold) does not arise when the insolvent trustee company has only ever acted as trustee of the trust; and
in the above limited case, the "property of the company" is to be applied in respect of priority creditor claims as directed by s 556 of the Act.
36 In light of the decisions in Re Amerind and Re Killarnee I was satisfied that the third and fourth directions sought by the Liquidator should be made. Relevantly, Maz Platinum's sole capacity was to act as trustee of the Maz Trust and there were no other priority creditors ranking ahead of the Liquidator.
37 In Re Amerind the Full Court of the Victorian Court of Appeal found at [124] that:
… the trustee's right of indemnity, both in relation to recoupment and exoneration, constitutes a proprietary interest in the trust assets which is, in the corporate insolvency context, 'property of the company'. …
38 The Court at [260] discussed Re Enhill and Re Suco Gold, noting that in both cases the trustee's right of indemnity, not excluding the right of exoneration, was characterised as "property of the company". The Court noted that the fundamental disagreement between the two cases was whether the proceeds of the right of exoneration is divisible on insolvency only among trust creditors, as held by Re Suco Gold, or among creditors of the trustee in liquidation generally, as held in Re Enhill.
39 At [276] and [281] of Re Amerind the Court noted that Re Suco Gold and Re Enhill were correct in their findings that once it is accepted that the right of indemnity is property of the insolvent, the insolvency legislation applies which is relevantly, s 555 and s 556 of the Act.
40 In Re Amerind the Court did not need to decide the question of whether distribution, if otherwise governed by the Act, is confined to trust creditors as opposed to creditors generally because all of the company's creditors were trust creditors: see [282].
41 In Re Killarnee Allsop CJ at [79] and Farrell J at [210]-[211] held that the right of exoneration and the lien in support is "property" of the company for the purposes of s 9 of the Act. On the other hand, Siopis J at [191] considered that on a proper construction of the Act the words "property of the company" in s 501 and s 555 are not addressed to a trustee company's right of indemnity.
42 At [102]-[104] Allsop CJ noted that each provision of s 556 of the Act has its own underlying legal policy and its own terminology but where, as is the case here, the company in question has only ever acted as corporate trustee for one trust, the property of the company that includes its right of exoneration and the funds obtained from its exercise is to be distributed in accordance with s 501 and s 556. His Honour noted that complications may arise where the company has administered more than one trust or has conducted affairs in its own right. In those circumstances, his Honour considered that each paragraph of s 556 of the Act should be considered individually for its meaning.
43 In relation to liquidator's costs, Allsop CJ at [105] cited with approval the statement in Re Suco Gold at 110 where King CJ concluded that they were payable out of the trustee's right of indemnity because, in effect, as the company's obligations as trustee to pay debts incurred in carrying out the trust cannot be performed unless the liquidation proceeds, it is reasonable to regard the expenses incurred by the liquidator in paying out those debts as debts of the company incurred in discharging the duties imposed by the trust and as covered by the trustee's right of indemnity. Further, the liquidator is entitled to have recourse to the property of each trust for the purpose of meeting the costs and expenses of the winding up, the petitioner's expenses and the liquidator's remuneration insofar as they were incurred in relation to each trust. At [106]-[108] Allsop CJ said that:
[106] If I may respectfully say so, there is not only practical wisdom in this approach, but also a sufficient grounding in the terms of the statute. Whilst one cannot take too much from the legal context of the jurisprudence (especially given its lively currency), by the time of the passing of the Corporations Act in 2001 Re Suco Gold had been decided for over 17 years. The position was broadly that Re Suco Gold was both well-regarded and followed (though by no means universally) including in relation to priorities and liquidator's costs. As to priorities and liquidator's costs: Re ADM Franchise Pty Ltd (1983) 7 ACLR 987 (McLelland J); Re Indopal Pty Ltd (1987) 12 ACLR 54 (McLelland J); Re GB Nathan and Co Pty Ltd (in liq) (1991) 24 NSWLR 674; 5 ACSR 673 (McLelland J); Sjoquist v Rock Eisteddfod Productions Pty Ltd (1996) 19 ACSR 339 (McLelland J); and 13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd (in liq) (1999) 30 ACSR 377; [1999] FCA 144 (Finkelstein J). It should be noted, however, that some leading texts and commentators do not favour the order of priority solution in Re Suco Gold, though the rejection of Re Enhill is almost universal, except in Victoria: see Meagher RP and Gummow WMC, Jacobs' Law of Trusts in Australia (5th ed, Butterworths, 1986) at 594-5; Heydon JD and Leeming MJ, Jacobs' Law of Trusts in Australia (8th ed) at 522-3; McPherson BH, "The Insolvent Trading Trust" in Finn PD (ed), Essays in Equity (Lawbook Co, 1985) at 153-4.
[107] I do not see equitable principle or any of the provisions of the Corporations Act as preventing the approach identified by King CJ, based as it is upon the limited nature of the proprietary interest of the insolvent trustee - to exonerate itself for a purpose out of trust property. Indeed, I see the legislation being given full effect, but harmoniously with fundamental equitable principle that otherwise governs and dictates the fair and proper administration of trusts, and into the framework and operation of which the statute was placed.
[108] Turning, for instance, to s 556(1)(e), (f), (g) and (h), in the present factual and historical circumstances of the Company there is no reason why the words of the provision should not be applied. These provisions reflect, as do the balance of s 556, important public policy considerations of the legislature. The carrying on of business by trusts has been well known for many years before 2001. The Report of the Australian Law Reform Commission (No 45) on General Insolvency recommended express clarification of the statute that was broadly conformable with the approach of King CJ in Re Suco Gold. (See Report 45 Vol 1 at [265] and Ch 6, generally, and Vol 2 Appendix A Section D, being draft legislation on Corporate Trading Trusts.) The Parliament has not seen fit to make any particular clarification of the position of insolvent corporations that acted as trustees of trading trusts. That circumstance does not, however, reflect a Parliamentary rejection of Re Suco Gold; nor does it undermine the application of the words of the statute to property of the company, albeit of a particular character, to the extent conformable with principle. Where the corporation has only ever acted as a trustee of one trust and that has been the totality of its affairs, there is no reason either in principle or by reference to context or text why the words of the statute setting the order of priorities should not be followed. Complexities may arise in circumstances of multiple trusts or of trusts and activity on the corporation's own account. Considerations of, or akin to, marshalling or hotchpot may be relevant as to the payment of debts dealt with in the statutory order. But these complexities will be resolved by application of principle and the text of the legislation, in a manner reflected by the approach of King CJ in Re Suco Gold.
44 Justice Farrell accepted that the decision in Re Amerind was binding (as the Full Court of this Court was not exercising appellate jurisdiction) and that it generally supported the conclusions of Allsop CJ at [101]-[102]. Her Honour noted at [200]-[201] that while she would not have taken the same path, she would have concluded that in this case, a court of equity would authorise the distribution of trust assets in paying the reasonable remuneration and costs of the liquidator in the priority provided by s 556(1) of the Act and employee related expenses in the order set out in s 556(1)(e), (f), (g) and (h) of the Act. At [222] her Honour also relevantly noted that where a company in liquidation had been formed to operate as a trustee of a trading trust to conduct a business which equally plausibly could have been conducted by the company in its own right, it was difficult to see why the same order of priority as prescribed in the priority regime under the Act should not be accorded to liquidators and employees under equitable principles.