Employee entitlements
70 In paragraph 11 of the originating process Messrs Kite and Hutchins seek a direction pursuant to ss 511 or 424 of the Corporations Act, or alternatively judicial advice, that they would be justified in paying employee entitlements out of the assets of the Trust in accordance with the priorities set out in s 556(1) of the Corporations Act.
71 Section 555 of the Corporations Act provides that, except as otherwise provided, all debts and claims proved in a winding up rank equally and, if the property of the company is insufficient to pay them in full, they must be paid proportionately. Section 556(1) then provides for an order of priority of payment of certain debts and claims in a winding up. It is in the following terms:
556 Priority payments
(1) Subject to this Division, in the winding up of a company the following debts and claims must be paid in priority to all other unsecured debts and claims:
(a) first, expenses (except deferred expenses) properly incurred by a relevant authority in preserving, realising or getting in property of the company, or in carrying on the company's business;
(b) if the Court ordered the winding up - next, the costs in respect of the application for the order (including the applicant's taxed costs payable under section 466);
(ba) if:
(i) during the period of 12 months ending when the winding up commenced, an application (the first application) was made under section 459P for the company to be wound up in insolvency; and
(ii) when the first application was made, the company was not under administration; and
(iii) the company began to be under administration at a time after the first application was made; and
(iv) the first application was not withdrawn or dismissed before the administration began; and
(v) the Court did not, in response to the first application, make an order under section 459A that the company be wound up in insolvency;
next, the costs in respect of the first application;
(c) next, the debts for which paragraph 443D(a) or (aa) entitles an administrator of the company to be indemnified (even if the administration ended before the relevant date), except expenses covered by paragraph (a) of this subsection and deferred expenses;
(da) if the Court ordered the winding up - next, costs and expenses that are payable under subsection 475(8) out of the company's property;
(daa) if the company resolved by special resolution that it be wound up voluntarily - next, costs and expenses that are payable under subsection 446C(8) out of the company's property;
(db) next, costs that form part of the expenses of the winding up because of subsection 539(6);
(dd) next, any other expenses (except deferred expenses) properly incurred by a relevant authority;
(de) next, the deferred expenses;
(df) if a committee of inspection has been appointed for the purposes of the winding up - next, expenses incurred by a person as a member of the committee;
(e) subject to subsection (1A) - next:
(i) wages, superannuation contributions and superannuation guarantee charge payable by the company in respect of services rendered to the company by employees before the relevant date; or
(ii) liabilities to pay the amounts of estimates under Division 268 in Schedule 1 to the Taxation Administration Act 1953 of superannuation guarantee charge mentioned in subparagraph (i);
(f) next, amounts due in respect of injury compensation, being compensation the liability for which arose before the relevant date;
(g) subject to subsection (1B) - next, all amounts due:
(i) on or before the relevant date; and
(ii) because of an industrial instrument; and
(iii) to, or in respect of, employees of the company; and
(iv) in respect of leave of absence;
(h) subject to subsection (1C) - next, retrenchment payments payable to employees of the company.
72 In effect, employee entitlements comprising wages, superannuation contributions and the superannuation guarantee charge payable by a company in respect of services rendered before the day on which the winding up is taken to have begun are to be paid after certain costs and expenses of the winding up and before ordinary creditors.
73 The Company, through its liquidators, seeks to pay a dividend to creditors, including employees, who have claims that arose prior to the appointment of the voluntary administrators, which is the day on which the winding up is taken to have begun: see ss 513B and 513C of the Corporations Act.
74 Notwithstanding its removal as trustee of the Trust upon appointment of the administrators, the Company continues to have the benefit of its rights of indemnity and exoneration in relation to liabilities incurred in trading the business of the Trust up to the date of appointment of the administrators: Theobald, in the matter of Finplas Pty Ltd [2014] FCA 31 at [23] (per Siopis J). To meet those provable claims, the liquidators would cause the Company to exercise the trustee's lien and get in the assets of the trust.
75 The evidence establishes that the provable debts exceed the assets of the trust so that the whole of the Trust's assets are required for the payment of creditor claims. No payment will be made to the beneficiaries of the Trust or to the shareholders of the Company.
76 As identified above, the issue that arises is whether the employee claims, which accrued prior to the appointment of the voluntary administrators, should be paid in priority to the balance of the creditors' claims in accordance with s 556(1) of the Corporations Act. Messrs Kite and Hutchins submitted that the issue directs attention to the question of whether those employee claims accrued prior to the appointment of the administrators, in the sense of being provable debts, and that that date is significant because it is the trustee's lien that is being invoked. In that regard I am satisfied that the evidence establishes that there are employee claims that accrued prior to the date of appointment of the administrators.
77 Messrs Kite and Hutchins submitted that the priority regime in s 556(1) of the Corporations Act would apply. They contended that that is so because the liquidator's duty is to get in the property of the company, including equitable interests that may need to be recognised or perfected by court order, and to share all of the property between creditors. They said that obligation extends to all valuable rights, even if the legal or equitable right is imperfect or requires the assistance of a court for enforcement.
78 Resolution of the issue that arises is not straightforward. There has been a divergence of views in the decided cases as to the applicability of the statutory priority regime in the circumstances which Messrs Kite and Hutchins now face. On the one hand are the decisions in Re Enhill Pty Ltd [1983] 1 VR 561 (Re Enhill) and Re Suco Gold in which a Full Court of the Supreme Court of Victoria and a Full Court of the Supreme Court of South Australia respectively held that the statutory priority regime, at the time found in s 292 of the relevant Companies Acts, applied to distributions of trust property. On the other hand is an emerging line of authority based on the decision of Brereton J of the Supreme Court of New South Wales in Re Independent Contractor Services (Aust) Pty Limited (in liq) (No 2) [2016] NSWSC 106; (2016) 305 FLR 222 (Re Independent Contractor) in which his Honour held that the priority regime in s 556 of the Corporations Act did not so apply.
79 Messrs Kite and Hutchins submitted that I would follow Re Suco Gold; that, to the extent that Re Enhill is inconsistent with Re Suco Gold, Re Enhill was wrongly decided; and that Bruton Holdings 2008 lends strong support to the correctness of Re Suco Gold. They submitted that it does not matter that some of the authorities talk of the trustee's lien vesting in the liquidator. They say that it is the trustee's right that is being exercised and, to the limited extent that the liquidator has any title, he or she holds it for the creditors, contributories and, perhaps, beneficiaries. They further submitted that by reason of the lien the trustee can no longer be said to have bare legal title, or even to have an equitable interest that is inferior to that of the beneficiaries, but that it has an equitable interest in trust property which is property of the Company within the meaning of s 555 of the Corporations Act. They contended that the reasoning in Re Suco Gold is correct as a matter of principle because the trustee's lien confers a sufficient beneficial interest over the property to make it "property of the company" within the meaning of s 555 of the Corporations Act.
80 In order to determine whether the Court should make the direction or give judicial advice in the terms sought by Messrs Kite and Hutchins it is necessary to consider the relevant authorities.
81 The starting point is the decision of a Full Court of the Supreme Court of Victoria in Re Enhill. I pause to observe that Re Enhill has been the subject of criticism in subsequent decisions including in this Court. Notwithstanding that, Messrs Kite and Hutchins submitted that it is relevant to the present analysis, pointing in particular to the observations of Lush J.
82 In Re Enhill the Full Court was concerned with an application by a liquidator to apply moneys resulting from the sale of assets held by the company as trustee in paying: first, the costs and expenses of the winding up, including the liquidator's remuneration; secondly, the costs of the petitioning creditor; and thirdly, the liabilities of the company incurred in the course of or for the purposes of its business. The only assets held by the company at the time of its winding up were trust assets. The liquidator's application to pay his own costs and expenses in priority to other creditors relied upon s 292(1)(a) of the Companies Act 1961 (Vic) (the equivalent of which is now found in s 556 of the Corporations Act), which provided that, subject to the provisions of that Act, on a winding up the costs and expenses of the winding up and the liquidator's remuneration should be paid in priority to all other unsecured debts.
83 At 564 Young CJ referred to the judgment of the High Court in Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 (Octavo), noting that the question that arose for determination was not decided in Octavo but that the High Court had recognised that a trustee's right to indemnity gave him or her a proprietary interest which, on bankruptcy, passed to his trustee in bankruptcy or, where the trustee was a company, came under the control of the liquidator. Young CJ said:
… In these circumstances to hold that a trustee in bankruptcy could only apply the proceeds of the right of indemnity towards some only of the bankrupt's creditors, viz. creditors of the trust business, would deny the very purpose of the right to indemnity which is to exonerate the trustee's personal estate. In a case like the present therefore the proceeds of the trustee's lien are available for division among the bankrupt's creditors generally, not only among creditors of the trust business, and in the case of a company in liquidation are subject to the control of the liquidator under s. 292. …
84 At 567 Lush J identified that the issue in the case, whether the liquidator has the right to his or her costs, expenses and remuneration under s 292(1)(a), was dependent on an analysis in terms of basic principle of a trustee's right of indemnity or lien in respect of the trust assets. His Honour continued:
… I have used the word lien as a shorthand expression covering the trustee's right as against the beneficiaries to retain the trust assets until he is put in funds to discharge the liabilities resulting from trust trading and his related right to raise himself, out of the trust assets, the necessary funds for that purpose. Professor H. A. J. Ford, in an article entitled "Trading Trusts and Creditors' Rights" (1981), 13 M.U.L.R. 1, has suggested that this right is not a right of property but a power. It is, however, a power which can be, and is designed to be, used for the trustee's own benefit, and is, I respectfully think, properly to be classed as a chose in action, and therefore as property of the trustee.
85 Lush J was of the opinion that the trustee's right of indemnity was part of his personal property and that it "exists to enable him to recoup himself for, or to provide for, the debts which he must bear personally". His Honour was of the view that the right of lien is a beneficial right of the trustee and that "the beneficial rights of the cestuis que trust as distinct from the trustee are reduced by the existence of the right of lien, and its exercise does not further diminish them": at 569.
86 In the result, all three members of the Full Court in Re Enhill reached the conclusion that the trustee's right of indemnity or lien over the trust assets was property of the corporate trustee which was available to its liquidator for division among the trustee's creditors generally. It followed that pursuant to the statutory priority regime the liquidator was entitled to be paid his remuneration, costs and expenses out of moneys realised from the use or sale of the trust assets.
87 Messrs Kite and Hutchins submitted that, despite the criticism of the court's view in Re Enhill that the proceeds of the trustee's lien were available for creditors generally and not just creditors of the trust, there is some force in the observations of Lush J that the lien is a pre-existing beneficial interest in the property of the trust. Messrs Kite and Hutchins contended that if the lien is a beneficial interest in trust property then, even if it is not the whole of the beneficial interest, it must be property of the Company for the purposes of s 555 of the Corporations Act. That submission is further considered below.
88 The next decision relevant to the analysis is Re Suco Gold. There a Full Court of the Supreme Court of South Australia had before it a liquidator's summons seeking directions as to whether he might apply money resulting from the sale of assets held by Suco Gold Pty Ltd (Suco Gold) as trustee of two unit trusts in paying and discharging the costs and expenses of the winding up, including the liquidator's remuneration; the costs of the petitioning creditor; and the liabilities of the company incurred by it or for the purpose of its business. Suco Gold had no assets apart from its rights of indemnity and its only debts were those incurred in carrying out the two unit trusts. Although the Full Court reached the same result as in Re Enhill, in coming to that result it did not follow the same reasoning.
89 At 103 King CJ referred to the decision in Re Enhill, noting that the Full Court had held that the liquidator was entitled to apply the moneys resulting from a sale by him of assets held by the company as trustee in payment of his costs and expenses in priority to other claims. At 105 his Honour then considered an argument based on the reasoning in Re Enhill that:
as the right of indemnity is effective to protect the trustee against debts which he has incurred but not paid, he or she is entitled to transfer trust property to himself or herself sufficient to meet those debts notwithstanding that he has not paid them;
the property then ceases to be trust property and, if bankruptcy or liquidation supervenes before payment of the debts, that property is property of the bankrupt divisible among creditors generally and not just among those creditors whose debts were incurred in the performance of the trust; and
the trustee's right of indemnity vests in the liquidator and, if the right of indemnity has not been exercised prior to liquidation, the liquidator is entitled to property of the trust equal in amount to the liabilities incurred in the performance of the trust notwithstanding that those liabilities have not been paid and that that property is divisible among the general body of creditors.
90 King CJ found that argument to be "in conflict with fundamental principles of the law of trusts". His Honour said that a trustee has no legal right to use or apply the trust property other than for authorised purposes of the trust. At 105 his Honour said:
… I cannot escape the conviction that if a trustee, or his trustee in bankruptcy, or liquidator in the case of a trustee company, is permitted to use trust property, not for the discharge exclusively of liabilities incurred in the performance of the trust, but in the discharge of other liabilities as well, the money is being used for an unauthorized purpose and is being used, moreover, for the benefit of the trustee, and of third parties, namely the non-trust creditors.
91 King CJ then considered a further argument based on Re Enhill, namely that the proposition affirmed by the High Court in Octavo, that the trustee's right of indemnity is a beneficial interest in trust property which passes to the trustee in bankruptcy or the liquidator, leads to the conclusion that the trust assets, to the extent of the trust liabilities, pass to the trustee in bankruptcy or the liquidator for the benefit of the general body of creditors. His Honour considered that Octavo did not lead to that conclusion and rejected the reasoning in Re Enhill on this point, saying at 107-108:
The right of indemnity, it is true, exists for the trustee's own benefit and it passes to the trustee in bankruptcy or the liquidator. The proceeds of that right of indemnity are therefore part of the estate divisible among the creditors. It seems to me, however, that the right of indemnity can only produce proceeds for division among the creditors generally if the trustee has discharged the liabilities incurred in the performance of the trust and is therefore entitled to recoup himself out of the trust property. If he has not discharged the liabilities, the right of indemnity entitles him to resort to the trust property only for the purpose of discharging those liabilities. He may apply the trust moneys directly to the payment of the trust creditors or he may take it into his own possession for that purpose. If he takes trust property into his possession to satisfy his right to be indemnified in respect of unpaid trust liabilities, it seems to me that that property retains its character as trust property and may be used only for the purpose of discharging the liabilities incurred in the performance of the trust. The exercise of the right of indemnity is for the benefit of the trustee in that it relieves him of liability for the trust debts. If the trustee is bankrupt, or being a company is in liquidation, the trustee in bankruptcy or liquidator can exercise the right of indemnity which vests in him as part of the property of the bankrupt or insolvent company. If the trust liabilities have been discharged, the trustee in bankruptcy or liquidator is entitled to recoup the bankrupt estate out of the trust property and the proceeds of the right of indemnity become part of the property divisible among the creditors. If the liabilities have not been discharged, the trustee in bankruptcy or liquidator may, by reason of the right of indemnity which vests in him, apply the trust property to the payment of the trust liabilities, thereby exonerating the bankrupt estate to the extent of the value of the available trust assets. In the latter circumstances there cannot be proceeds of the right of indemnity which are available for distribution among the general body of creditors.
92 At 109 King CJ then considered the facts before him in light of the principles as he had found them. In doing so he noted that the liquidator was bound by s 292; that the liquidator must therefore endeavour to pay the company's debts in accordance with the order of priority set out therein; and that "[t]o the extent that each priority debt has been incurred in the performance of a particular trust [the liquidator] should have recourse to the property of that trust for the purpose of paying it". His Honour continued at 110:
It is now necessary to consider the position of the liquidator's costs, expenses and remuneration in the light of the above principles. Although I have not found myself able to agree with certain of the reasoning in Re Enhill Pty. Ltd., it is, as a decision of the Full Supreme Court of Victoria, a highly persuasive authority for the proposition that the liquidator's costs, expenses and remuneration may be paid out of the trust property. There are clearly strong practical considerations in favour of such a course. Unless that course can be followed, the liquidation of a trustee company without assets of its own cannot proceed. It seems to me that that course can be justified by reference to the obligations of the trustee company arising out of the carrying on of the business authorized by the trusts. It is part of the duty of the trustee company to incur debts for the purposes of the trust businesses and, of course, to pay those debts. Upon winding up those debts can only be paid in accordance with the provisions of the Companies Act. This requires necessarily that there be a liquidator and that he incur costs and expenses and be paid remuneration. Section 292 provides that there be paid the costs and expenses of winding up, the taxed costs of the petitioner and the remuneration of the liquidator "in priority to other unsecured debts" (italics mine). The expression "other unsecured debts" appears to imply that the costs and expenses of winding up, the petitioner's costs and the liquidator's remuneration are regarded by the statute as debts of the company. As the company's obligation as trustee to pay the debts incurred in carrying out the trust cannot be performed unless the liquidation proceeds, it seems to me to be reasonable to regard the expenses mentioned above as debts of the company incurred in discharging the duties imposed by the trust and as covered by the trustee's right of indemnity. If that reasoning is wrong, I would, like Lush J. in Re Enhill Pty. Ltd., be prepared to rely on the principle enunciated by Dixon J. in In re Universal Distributing Co. Ltd. (In Liquidation).
(footnotes omitted)
93 Before leaving Re Suco Gold it is relevant to note the decision of Jacobs J. His Honour also concluded that s 292(1)(a) applied to enable the liquidator to be paid his remuneration and the costs and expenses of the winding up in priority to all other unsecured debts. But his Honour reached that conclusion via a process of statutory construction, noting that, looking at the whole of the legislative scheme, there was nothing in the language or structure of the legislation to deny the proposition that "s. 292 can operate upon the trust assets to provide for the remuneration of the liquidator in priority to other claims, more particularly as the other provisions of s. 292 would seem clearly to be available to regulate the rights of creditors inter se": at 113.
94 Messrs Kite and Hutchins submitted that, based on the research of their counsel, Re Suco Gold has been cited "at least 100 times". As at the date of the hearing they had not been able to find any support for the conclusion that "it has been disapproved of" other than by Brereton J in Re Independent Contractor. I turn to consider that decision next, which represents the competing line of authority.
95 In Re Independent Contractor the liquidator of Independent Contractor Services (Aust) Pty Ltd, which had been the trustee of the Independent Contractor Services Trust, sought directions and an order that raised as an issue for determination the distribution of the trust assets and, in particular, whether the company's liability to the Australian Tax Office (ATO) for superannuation guarantee charge was entitled to priority. Brereton J first considered whether the company's liabilities to its creditors, and in particular the ATO, were covered by the trustee's right of indemnity. He answered that question positively, finding at [19] that the company's liabilities, including those owed to the ATO, were incurred in the course of its acting as trustee and that the company (and its liquidator) was entitled to be indemnified from the trust assets in respect of those liabilities in priority to the interests of the beneficiaries.
96 Brereton J then turned to consider whether the superannuation guarantee charge liability was entitled to priority pursuant to s 556(1) of the Corporations Act and, if not, how those liabilities would rank. His Honour considered that that issue gave rise to two subsidiary questions: first, whether the liability fell within s 556(1)(e); and secondly, if so, does s 556 apply to the rights of trust creditors in respect of trust property. His Honour answered both of those questions in the negative. The issue was thus disposed of on the basis of Brereton J's finding that the liability to the ATO was not one in relation to an "employee" for the purposes of s 556 and for that reason was not entitled to priority under s 556(1)(e).
97 Nevertheless, his Honour went on to consider the second subsidiary question of whether s 556 would have any application to the case before him. In doing so he said at [23]:
[T]he South Australian Full Court admittedly held in Re Suco Gold Pty Ltd that in respect of each trust of which the company in liquidation was trustee, liabilities were to be paid from the trust property in the order laid down in Companies Act 1962 (SA), s 292 - the predecessor of s 556. However, this is virtually universally accepted to be incorrect, although what is the correct position remains unclear. It is incorrect because s 556 is concerned only with the distribution of assets beneficially owned by a company and available for division between its general creditors. The essential alternatives are (as Daryl Williams QC suggested) that where the equities are equal, the trust creditors have priority according to the order in which the claims arose, on the basis that as each claim arose it brought with it an interest, via subrogation, in the trustee's lien over the trust assets; or that the trust creditors' claims rank pari passu (as suggested by the authors of Jacobs' Law of Trusts, and implicitly by McPherson J and R P Meagher QC).
(footnotes omitted)
98 Brereton J preferred the latter view. His Honour reasoned at [24] that the creditor of a trust had a right to enforce the trustee's indemnity only to the extent that the indemnity existed in the hands of the trustee. Where there were multiple creditors, they shared that right. His Honour noted that "[a]s the quantum of the indemnity fluctuates from time to time - as the trustee incurs debts to third parties, and incurs personal liability to the beneficiaries - as does the identity of the creditors - the better analogy is, as the authors of Jacobs' suggest, cases of competing claims by beneficiaries of different trusts to trace into a mixed fund, which produces a ranking pari passu". At [25] his Honour concluded as follows:
It follows that the company, as trustee, had, and its Liquidator now has, a right of indemnity from, and lien over, the trust assets, which has priority over the interest of the beneficiaries, for liabilities it incurred in acting as trustee. As all the company's liabilities were incurred in its trustee capacity, all its creditors (including in particular the ATO in respect of superannuation guarantee charge and PAYGW penalty) are entitled to be subrogated to the Liquidator's lien. The statutory priority referred to in s 556 does not apply in respect of trust assets, and the creditors share pari passu in the trust assets, after providing for the costs of administration including the Liquidator's remuneration and expenses. …
99 Brereton J referred to three decisions in support of his explanation for why, in his view, the conclusion about the applicability of the statutory order of priority in Re Suco Gold is incorrect: Re Kayford Ltd (in liq) [1975] 1 WLR 279 (Re Kayford); Re Staff Benefits Pty Ltd [1979] 1 NSWLR 207 (Re Staff Benefits); and Bruton Holdings Pty Ltd (in liq) v Federal Commissioner of Taxation (2011) 193 FCR 442 (Bruton Holdings 2011).
100 In Re Kayford the court considered whether moneys held in a particular bank account were held on trust for the individual customers who paid those moneys in or whether those moneys formed part of the general assets of the company available for the creditors generally. Megarry J found that the moneys were held on trust. At 282 his Honour said: "I feel no doubt that here a trust was created. From the outset the advice (which was accepted) was to establish a trust account at the bank. The whole purpose of what was done was to ensure that the moneys remained in the beneficial ownership of those who sent them, and a trust is the obvious means of achieving this". That is, Megarry J found that, as the moneys were held on trust for the individual depositors, they could not be used and were not available for payment to the creditors of the company generally. The company had no beneficial interest in those moneys.
101 In Re Staff Benefits the liquidator sought directions as to the relative priorities of certain classes of creditors in the distribution of funds held by him. There were two different classes of creditors: investors and depositors. The depositors argued that the company was a trustee for the investors; that the amounts due to the depositors were liabilities of the trustee incurred in the administration of the trusts and achieve priority over the beneficiaries because of the principle that a trustee is entitled to an indemnity for the liabilities so incurred; and that the creditors are entitled to be subrogated to the trustee's remedies. The question for the court was whether the principle of equity, or clause 7(c) of the form of agreement pursuant to which the persons invested money, or a combination of both gave the depositors priority over the investors as beneficiaries of the trusts.
102 Needham J made a direction that the depositors were entitled to priority in payment out of the funds in the liquidators' hands. His Honour held at 213 that the principle of equity gave the trustee a prior claim for his liabilities over that of the beneficiaries and that the creditors who stand in his shoes have a like priority. His Honour rejected a submission by the investors that the company was not entitled to an indemnity or lien because it was in breach of trust.
103 Needham J then turned to consider the remaining question, which was the rate of interest applicable to the depositors' claims. In addressing that issue Needham J had to consider whether s 112 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act), which provided for an allowance of interest "where a creditor has proved a debt that is for, or includes interest", applied. The depositors, relying on s 116 of the Bankruptcy Act, submitted that s 112 only applied to claims against the "property of the bankrupt". On that issue Needham J said at 215:
… In a situation where the funds available are not sufficient to meet the claims of the investors and of the depositors, it must be the case that payment of the claims of the depositors in full involves making an inroad into funds which would otherwise be held in trust for the investors. Those assets are not "assets of the company", and the justification for preferment of the depositors is not any rule of bankruptcy administration, but the principle of indemnity and lien earlier discussed.
104 Needham J concluded that s 112 of the Bankruptcy Act did not apply and that the depositors would be entitled to claim their contractual rate of interest up until the date of the winding up order.
105 Bruton Holdings 2011 concerned a dispute between the Commissioner of Taxation and the liquidators about whether the shortfall between Bruton's solicitor-and-client costs and its party-and-party costs in relation to a series of proceedings should be paid out of a trust fund. The primary judge found that Bruton Holdings Pty Ltd (Bruton) had rights of exoneration from trust assets in respect of all obligations incurred by it in the administration of the trust. But the primary judge considered that as bare trustee of the trust assets it was not part of Bruton's functions to institute the primary proceeding and the costs were therefore not properly incurred by Bruton in the administration of the trust fund. Despite its ultimate success in the proceedings, Bruton was not acting as trustee in discharge of its then trust obligations and thus the primary judge declared that it was not entitled to indemnification by exoneration or recoupment out of the property of the trust fund for the costs. The issue on appeal was whether the obligations of Bruton as bare trustee of the fund extended to opposing by litigation the action of the Commissioner in issuing a notice to its solicitors pursuant to s 260-5 of Sch 1 to the Taxation Administration Act 1953 (Cth).
106 A Full Court of this Court (Stone, Jacobson and Edmonds JJ) found at [23] that the proceeding initially commenced by the liquidators was a defensive action in response to the Commissioner's impermissible attempt to garnishee the debt and that it was necessary to protect the trust property against unauthorised appropriation.
107 Their Honours also noted that Bruton argued the appeal on an alternative basis, namely that the primary judge erred in failing to hold that s 556(1)(a) of the Corporations Act entitled it to indemnity for expenses incurred in the proceedings. The effect of the submission made by Bruton was that the litigation expenses incurred by it as a bare trustee were "properly incurred" in preserving the property of the company within s 556(1)(a). Their Honours noted that because of the view to which they had come, that the primary judge had erred in finding that it was no part of Bruton's functions as a bare trustee to institute the proceedings, it was unnecessary for them to determine the alternative ground of appeal. However, at [27] they observed that "a difficulty arises as to whether s 556 governs the order of priority where trust assets are insufficient to meet the claims of all trust creditors". Their Honours also noted that the authors of Jacobs' Law of Trusts in Australia (7th ed, LexisNexis Butterworths, Australia, 2006) were of the view that "s 556 addresses only the distribution of assets beneficially owned by an insolvent company".
108 Contrary to the submission put by Messrs Kite and Hutchins, in my opinion, to the extent that these cases suggest that trust assets are not beneficially held by a trustee, they lend support to the proposition put by Brereton J that the conclusion in Suco Gold is incorrect because "s 556 is concerned only with the distribution of assets beneficially owned by a company and available for division between its general creditors".
109 Support for the proposition put by Brereton J is found in Heydon JD and Leeming MJ, Jacobs' Law of Trusts in Australia (8th ed, LexisNexis Butterworths, 2016), which was also referred to by his Honour (albeit the 7th edition). At [21-15] the learned authors observe that the decision in Re Suco Gold is "not unblemished". They express the view that the conclusion reached in Re Suco Gold, that liabilities are to be paid from the trust property in the order set out in the predecessor to s 556 of the Corporations Act, cannot be correct. The authors, like Brereton J, note that s 556 is concerned only with distribution of assets beneficially owned by the company and available for division between the general creditors. But Messrs Kite and Hutchins submitted that the view expressed by Brereton J overlooks the beneficial interest created by the trustee's lien.
110 In their written submissions, Messrs Kite and Hutchins referred to a series of decisions of single judges of this Court, commencing with Re Matheson; Ex parte Worrell v Matheson (1994) 49 FCR 454 and ending with Condon (Trustee), in the matter of Rayhill (Bankrupt) v Truthful Endeavour Pty Ltd [2015] FCA 7, which had referred to or followed various aspects of the reasoning in Re Suco Gold. But those cases did not address the issue before me, namely whether the trust liabilities are to be paid from the trust assets in accordance with the priorities set out in s 556 of the Corporations Act. Accordingly, I do not propose to consider those decisions in any detail.
111 Messrs Kite and Hutchins also took me to the decision in Bruton Holdings 2008, which considered Re Enhill and Re Suco Gold and which they submitted lent support to the correctness of Re Suco Gold. There a Full Court of this Court (Ryan, Mansfield and Dowsett JJ) considered whether notices requiring the respondent's solicitors to pay moneys held in trust to the Federal Commissioner of Taxation were void and unenforceable because they constituted an "attachment" for the purposes of s 500 of the Corporations Act, as had been found by the primary judge. Bruton was a trustee of a trust with a charitable purpose. Upon the appointment of administrators it ceased to be trustee of the trust. The administrators were later appointed as liquidators of Bruton.
112 The Full Court identified a number of relevant propositions concerning the winding up of an insolvent corporate trustee with tax debts. Under the heading "Trusts and trustees" the Court noted that the case at first instance was conducted on the basis that the duties, powers and rights of Bruton as trustee of a trust for a charitable purpose were effectively the same as those established by courts of equity in connection with trusts for identified beneficiaries. The Court also noted that the case appeared to have proceeded on the basis that, with one possible exception, no relevant statutory provision and no term of the trust deed materially affected those duties, powers and rights. The exception was the Commissioner's submission that s 254 of the Income Tax Assessment Act 1936 (Cth) had some effect on a trustee's right to indemnity for tax debts. In considering that submission, which the Full Court ultimately rejected, their Honours observed at [36] that a trustee is generally entitled to an indemnity out of the assets of the trust for debts incurred in the course of performing its duties as trustee and that it has a lien over trust assets securing that right of indemnity.
113 The Full Court also considered the issue of "Trust assets in a winding up". The Court observed that the case primarily concerned the respective rights of the Commissioner and the liquidators to apply trust moneys, being the moneys held by the solicitors, to pay either the company's tax liability or the liquidators' costs and expenses, including their remuneration. The Court was not concerned with the issue that is currently before me, but considered the extent to which trust assets can be applied in payment of the debts of a corporate trustee. The Court referred to the "apparently conflicting" decisions in Re Byrne Australia Pty Ltd [1981] 1 NSWLR 394, Re Byrne Australia Pty Ltd (No 2) [1981] 2 NSWLR 364 and Re Suco Gold on the one hand and Re Enhill on the other. Their Honours did not resolve the apparent conflict, although they noted the criticism of the decision in Re Enhill. After considering each of those decisions they said at [55]-[58]:
55 In Ramsay v National Australia Bank Ltd [1989] VR 59 the Full Court noted that the decision in Re Enhill had been criticised but found it unnecessary to consider its correctness. See also Nolan v Collie (2003) 7 VR 287 at 313. Re Enhill was followed by McLelland J in Grime Carter & Co Pty Ltd v Whytes Furniture (Dubbo) Pty Ltd [1983] 1 NSWLR 158 but not followed by his Honour in the subsequent decision of Re ADM Franchise Pty Ltd (1983) 7 ACLR 987. In that case his Honour followed Suco. In Re Matheson; Ex parte Worrell v Matheson (1994) 49 FCR 454 a single Judge of this Court applied Suco. The Honourable BH McPherson, speaking extra-curially, favoured the approach in Suco to that in Re Enhill. See Finn (ed), Essays in Equity (1985) pp 153, 154. In the same volume (pp 249-50) Sir Anthony Mason observed that the decision in Re Enhill looked "distinctly fragile". In his essay "Unsecured Borrowings by Trustees of Commercial Trusts" (10 Australian Bar Review 248 at 249-50), JD Merralls QC observed, concerning the question presently under review "Upon this point Re Enhill Pty Ltd has few supporters: The present Chief Justice of the High Court has written extra-judicially that its reasons 'look distinctly fragile'".
56 The text book writers have taken similar views. See Gronow MGR, McPherson's Law of Company Liquidation (Lawbook Co.) at [11.120]. See also Heydon JD and Leeming MJ, Jacobs' Law of Trusts in Australia (7th ed, LexisNexis Butterworths, 2006) at [2114]. The learned author of McPherson submits that:
Assets held by the company on trust, although not available for the purposes of winding up, are nevertheless subject to the control of the liquidator acting through the company in the place of the directors. Moreover, the creditors of a trustee company the debts of which were incurred in the administration of the trust are entitled to be subrogated to the trustee company's claim to an indemnity out of the assets of the trust. The assets that are available in this way to the creditors by subrogation are not assets available for distribution among the general creditors of the company.
In the absence of any statutory provision regulating the administration of trusts of which the company is the trustee, the liquidator is expected to act in a responsible way in the administration of the trust in the name of the company. This duty does not necessarily require the liquidator in all cases to apply to the court for the appointment of a new trustee. Indeed, it is this involvement in the administration of the trust and the winding up of the trustee company that forms the basis of the liquidator's claim to be subrogated to the trustee company's right of indemnity from the trust assets in respect of remuneration, costs and expenses. Only where the liquidator's costs and expenses are necessarily incurred in performing the company's duties as trustee will it be possible for the liquidator's costs and expenses to be recouped from the trust assets.
57 The learned authors of Jacobs submit that Byrne and Suco are correct and that Re Enhill is incorrect. However, as to the liquidator's costs, expenses and remuneration, they say, relying on Suco and other cases:
Where the trustee of a trading trust is in liquidation, the liquidator's costs, expenses and remuneration may be paid out of trust assets, because the trustee's obligation to pay debts can only be performed, after the liquidation has commenced, through the liquidator, whose right of remuneration is to be regarded as a debt incurred in performing the duties of the trustee.
58 This view differs from that expressed in McPherson. Note also the treatment of the matter in the 6th edition of Jacobs (RP Meagher and WMC Gummow) at [2114].
114 While an appeal to the High Court against the Full Court's orders in Bruton Holdings 2008 was allowed (see Bruton Holdings Pty Ltd v Federal Commissioner of Taxation (2009) 239 CLR 346), the Full Court's observations on the effect of a winding up of a corporate trustee were not considered by the High Court.
115 Following the hearing, Messrs Kite and Hutchins provided the Court with the judgment of Farrell J in Woodgate, in the matter of Bell Hire Services Pty Ltd (in liq) [2016] FCA 1583 (Woodgate), which was handed down after the conclusion of the hearing. That matter concerned an application for directions and advice made pursuant to s 479(3) of the Corporations Act and s 63 of the Trustee Act respectively by the liquidator of Bell Hire Services Pty Ltd (Bell Hire). Bell Hire, until the appointment of the liquidator, had been the trustee of the Vercoe Family Trust. The liquidator sought directions in relation to his remuneration and that he be entitled to distribute the assets of the trust, first, in payment of the petitioning creditor's costs; secondly, in payment of his costs of the making of the application for directions; and thirdly, in payment of his remuneration.
116 Farrell J was satisfied that Bell Hire's sole business activity was the conduct of the business of the Vercoe Family Trust, such that the assets held by the liquidator were trust property: at [18]. Her Honour was also satisfied that, as a replacement trustee had not been appointed, Bell Hire continued as bare trustee of the trust assets and retained its right of indemnity and exoneration over those assets but did not have a power of sale: at [21].
117 At [24] Farrell J held that where a trustee acts reasonably and in good faith the general rule is that the trust assets bear the costs of a trustee's application for advice and directions, either directly or under the trustee's indemnity. Her Honour found at [26] that, in the context of an insolvent trustee of a trading trust, it was appropriate for the liquidator to approach the Court for directions and advice and that he was justified in paying the cost of that application from the trust assets. Her Honour also held at [22] that the liquidator's remuneration and expenses for work relating to trust assets which is "properly done for the purpose of winding up the company's affairs" should be paid out of non-trust property of a trustee company where such property is available but that, where non-trust property is not available and a liquidator would not otherwise be required to undertake that work, it would normally be appropriate for the cost of the work to be paid from trust assets, citing In the matter of AAA Financial Intelligence Ltd (in liquidation) ACN 093 616 445 [2014] NSWSC 1004.
118 In relation to the costs of the petitioning creditor, Farrell J followed Re Suco Gold on the issue of whether those costs are to be regarded as a trust debt, noting that she had not been persuaded that Re Suco Gold was plainly wrong on that issue. However, her Honour said at [35]-[37]:
35 However, if the costs of the winding up application are an incident of the Trust's business, then having regard to the reasoning of Brereton J in In the matter of Independent Contractor Services (Aust) Pty Limited ACN 119 186 971 (in liquidation) (No 2) [2016] NSW 106, any claim by GIO as a creditor of the Trust for its costs of the winding up application must rank pari passu with other Trust creditors, outside the priority conferred by s 556(1)(b). That is contrary to the result in Re Suco Gold but consistent with the otherwise orthodox principles discussed by King CJ in Re Suco Gold at 104 and 107-108 and with the decision of the High Court in Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360; [1979] HCA 61. In my view, criticisms of the approach taken by Brereton J are misplaced and I will adopt that approach.
36 The fact that the trustee enjoys an indemnity secured generally over trust property and that it is proprietary in nature does not automatically bring trust property within the general pool of creditors' claims in a winding up or the statutory order of priority for payment. A trustee company is not entitled, in exercise of its indemnity, to appropriate trust property before payment of a trust debt so that the amounts appropriated become available to the company's creditors generally in the liquidation. It is only if the creditors of the trust have been paid out of the trustee company's own funds that the company's general creditors are entitled to be paid out of trust assets appropriated to satisfy the trustee's right of recoupment; the statutory order of priority for payment then applies. Unpaid trust creditors are entitled to stand in the shoes of the trustee and to obtain payment from the trust property; the right of subrogation must be exercised in their favour; trust property is therefore not property divisible among the trustee's creditors generally and the statutory order [of] priority does not apply.
37 It has been observed that careful attention must be paid to whether the trustee's indemnity is being asserted as a right of recoupment or exoneration. Where it is exoneration, the trustee may resort to trust property only for the purpose of discharging trust liabilities. "Company law ends and trust law takes over" at a point earlier than where the right being exercised is the right of recoupment: see the useful discussion in D'Angelo, N "Commercial trusts in practice: the trust as a surrogate company" (Paper presented at the Annual Commercial and Corporate Law Conference, Supreme Court of New South Wales, 15 November 2016) and in his book Commercial Trusts (LexisNexis Butterworths, 2014), particularly at 5.124-5.127 under the heading "The true nature of the exoneration limb: a power to apply assets for the benefit of creditors". I endorse that view. It is inconsistent with principle to apply the statutory order of priority for payment of the company's debts out of its own property to the order of distribution of trust property. That this might result is two regimes (for trust property and property of the company) is unfortunate, but it is something which courts have had to accommodate.
119 Messrs Kite and Hutchins submitted that, while in Woodgate the decision in Re Independent Contractor was preferred over that in Re Suco Gold on the question of whether the claims ought to be paid in accordance with the statutory order of priority in a winding up, her Honour did not appear to have had the benefit of detailed argument on the point. That may or may not be so but, as Messrs Kite and Hutchins also submitted, her Honour's judgment is recent, on a very similar point to that which is before me and should be given great weight. Indeed, in the absence of a submission that it is plainly wrong, which is not made, and a conclusion by me that that is so, I would follow the decision in Woodgate.
120 Messrs Kite and Hutchins contended that the dichotomy described by Farrell J at [37] between the right of recoupment and the right of exoneration provides a point of distinction. They said that in the present case the "trust liabilities were plainly trust liabilities" so the right of exoneration applies before "company law ends and trust law takes over". This submission does not, in my opinion, take the matter any further. The effect of her Honour's observation is that, if the liabilities are trust liabilities, as they seem to be, which remain unpaid such that the trustee's indemnity is being asserted as a right of exoneration, then trust law takes over at an earlier point in time.
121 The final decision to be considered is Re Amerind Pty Ltd (receivers and managers apptd) (in liq) [2017] VSC 127 (Re Amerind), a decision of Robson J in the Supreme Court of Victoria. It too was handed down after the hearing of this matter concluded, as recently as 23 March 2017. Because it considers the very issue now before me it is necessary to consider Re Amerind in some detail.
122 By way of background, Amerind Pty Ltd (Amerind) carried on a business solely in its capacity as trustee of the Parcel Veneer Processes Trading Trust. It had a number of secured facilities with the Bendigo and Adelaide Bank Limited (Adelaide Bank). On 6 March 2014 Adelaide Bank sent a notice demanding repayment of and terminating the existing facilities. Shortly thereafter, the sole director of Amerind resolved to appoint administrators to the company. On the same day Adelaide Bank appointed receivers and managers to Amerind. On 13 August 2014 Amerind's creditors resolved that it be wound up and the administrators were appointed as liquidators. In the meantime the receivers and managers had traded on and realised the assets that Amerind held on trust. Adelaide Bank was ultimately paid out and, after providing for the receivers and managers' remuneration, there was a net surplus of approximately $1.6 million.
123 The receivers sought directions pursuant to s 424 of the Corporations Act on discrete issues concerning the distribution of the surplus and issues arising in the receivership, including a direction concerning whether the receivers were justified in distributing the receivership surplus in accordance with the priority regimes in ss 433, 556 and 560 of the Corporations Act. It is relevant to note that, like me, Robson J had the benefit of full argument on the issue before him on behalf of the receivers and managers who sought the directions and, in addition, the court granted leave to various parties having a possible claim or interest in the receivership surplus to appear as interested parties on the application. They were the Commonwealth Department of Employment (Commonwealth), which had paid accrued wages and entitlements to former employees of the business under the Fair Entitlements Guarantee Scheme and sought to recover those moneys as a priority under ss 433 and 556 of the Corporations Act, certain secured creditors, the former wife of the sole director of Amerind and the liquidator.
124 Having satisfied himself that it was appropriate to direct that the receivers were justified in treating the receivership surplus as a trust asset, Robson J then considered whether the priority regime in ss 433(3) (relating to property subject to a circulating security interest), 556 and 560 of the Corporation Act applied to the proceeds of the various assets constituting the receivership surplus insofar as those assets were, as at the date of the receivers' appointment, also circulating assets of Amerind within the meaning of s 340 of the Personal Property Securities Act 2009 (Cth) and s 51C of the Corporation Act.
125 Relevant to that issue, Robson J found that Amerind had no assets of its own; that liabilities were incurred by it as trustee; and that the creditors were therefore trust creditors. His Honour observed at [50] that Amerind did not have its own money to meet trust liabilities; that it sought to be indemnified from the trust assets for liabilities it incurred in carrying out the trust by using trust moneys to pay the trust creditors; and thus that the moneys paid by the trustee to the creditors remained trust money, although the liability was that of the trustee.
126 His Honour noted that in those circumstances the trustee had a right in equity to be indemnified, being a right of exoneration as opposed to recoupment, from the trust assets for liabilities it incurred on behalf of the trust. His Honour also noted that that right of indemnity was supported by an equitable lien over all of the trust assets but that it was constrained to the limit of the liabilities that it secured. Creditors of the trust were entitled in equity to be subrogated to the rights of the trustee and thus, with the aid of the court, to exercise the trustee's lien and the right to be indemnified against the trust assets. The money so recovered would be trust moneys: at [51].
127 There were two principal sets of submissions which Robson J considered. First, the Commonwealth, the liquidator and the receivers claimed that the trustee's right of indemnity was "property of the company". This is the same claim made by Messrs Kite and Hutchins before me. Secondly, the receivers and the Commonwealth submitted that the priority regime should apply. Insofar as there were competing authorities on the issue, the receivers, the Commonwealth and the liquidator all submitted that Re Independent Contractor should not be followed and that Robson J was bound to and should follow Re Enhill. One of the secured creditors given leave to appear, Carter Holt Harvey Wood Products Pty Ltd (CHH), submitted that the court should follow Re Independent Contractor. CHH further submitted that in doing so Robson J would not be departing from Re Enhill because, it submitted, insofar as Re Enhill said that the right of indemnity is a personal right of the trustee and an available asset of an insolvent corporate trustee, it is available to pay costs and expenses of a liquidator and Brereton J said nothing inconsistent with that.
128 In the result Robson J answered the issues posed by the submissions as follows:
(1) the trust assets at all times remain trust assets which may be used to indemnify creditors for liabilities incurred on behalf of the trust. The trustee's right of indemnity and related lien do not become "property of the company" and are not available to meet other liabilities of the company. Rather, they may only be used to satisfy liabilities on behalf of the trust: at [53]; and
(2) the reasoning in Re Independent Contractor is to be preferred to Re Enhill. Accordingly, Robson J applied Re Independent Contractor and found that the priority regime did not apply to distributions of trust property: at [67].
129 Robson J reached his conclusion after careful analysis of the relevant authorities. In coming to his conclusion Robson J first considered whether s 433 of the Corporations Act applied. After considering the parties' submissions, Robson J held at [76] that prima facie s 433(3) applied and the question then became whether that section and the priorities in s 556 applied to property held on trust by the relevant company.
130 Robson J then moved to consider whether the trustee's right of indemnity constitutes "property of the company". Relevantly, s 433(3) includes the expression "property coming into his, her or its hands". Robson J held that that was a reference to property of the company. Accordingly, s 433(3) is enlivened if the receiver takes possession of property of the company: at [77]. His Honour noted that a receiver must pay out of the property of the company coming into his, her or its hands certain debts or amounts in priority to any claim for principal or interest in respect of the debentures and that the third priority category, as set out in s 433(3)(c), required payment of any debt or amount that in a winding up is payable in priority to other unsecured debts pursuant to ss 556(1)(e), (g) or (h) or 560.
131 Robson J undertook a review of the authorities concerning the nature of a trustee's right of indemnity. Before doing so he relevantly noted that the case before him was concerned with exoneration, not recoupment, and that Amerind had no assets of its own with which to pay the trust creditors. Nor was there any allegation that there had been any breach of trust such that the liabilities incurred by the trustee giving rise to the indemnity were not properly incurred or that the trustee had to make good some loss or damage arising from a breach of trust. These comments apply equally to the case before me. The distinction is relevant because the authorities distinguish between a trustee's right of exoneration and right of recoupment. In particular, in the former case the creditor is subrogated to the trustee's right of indemnity against the trust assets and, if he or she is not paid, may take proceedings to enforce the indemnity against the trust estate.
132 It is not necessary to set out in detail Robson J's review of the authorities, which can only be described as exhaustive, commencing with the decision in Worrall v Harford (1802) 8 Ves 4; 32 ER 250 and concluding with the decision in Woodgate. Having carried out that review his Honour concluded that there are possibly four different lines of reasoning leading to the conclusion that the trustee's right of indemnity over trust assets is only available to meet trust liabilities and is not a personal asset of the trustee: at [249]-[253]. His Honour had earlier summarised those lines of reasoning, saying at [100]-[103]:
100 The four different lines of reasoning overlap and support each other. They are as follows. First, in the case where the indemnifying party has an interest in the extinction of the liability to which the indemnity relates, such an indemnifier 'is concerned in the discharge of those liabilities by the trustee so as to free the trust property from any charge thereon.' In that case, the money the subject of the indemnity must be used to discharge the liability which caused or created the emergence of the indemnity.
101 Secondly, assets to which the trustee is entitled to under its right of indemnity are trust assets, and trust assets may not be used for any other purpose than the authorised purposes of the trust, which includes paying debts incurred on behalf of the trust but does not include paying private debts of the trustee.
102 Thirdly, the trustee's right of indemnity, in the case of exoneration, is subject to the creditors' right of subrogation, which is a proprietary right. Thus the trustee's right of indemnity is not free from the proprietary interest of its creditors.
103 Fourthly, the trustee would not be freed of the claim giving rise to the indemnity if the trustee took assets of the trust under the purported right of indemnity to meet other personal expenditure of other non-trust liabilities and did not use the assets to be freed of the claims of the trust creditors.
133 After identifying the four lines of reasoning his Honour said at [255]-[256]:
255 In my opinion, all four grounds of reasoning support the proposition that the right of indemnity that an insolvent trustee has over trust assets that arises through its incurring debts on behalf of the trust, constitutes a charge in favour of the trustee over all the assets of the trust that may also be exercised and enforced by the unpaid creditors of the trustee, where the liability to the creditors by the trustee caused the emergence of the indemnity. All four grounds lead to the conclusion that where an insolvent trustee has a right of exoneration from the trust assets that right does not form part of his personal estate but must be exercised and applied for the benefit of the trust to reduce the proprietary right of creditors over the assets of the trust estate and to achieve a true indemnification of the trustee from claims of the trust creditors.
256 The relevant principles appear to be as follows:
(a) Where a trustee lawfully carries on a business of the trust estate the trustee has a right of indemnity and a lien over all the trust estate's assets for the liabilities incurred by the trustee in carrying on the business.
(b) Creditors of the trustee incurred on behalf of the trust have no right of action directly against the assets of the trust.
(c) The extent of the indemnity or lien of the trustee is limited to the extent of the trustee's overall right indemnity and no more. Thus, if the trustee is liable to the estate on some ground, it is only the net amount of the entitlement of the trustee that is subject to the right of indemnity and lien.
(d) The trustee's indemnity lien extends to all the trust's assets (constrained to the limit of the liabilities that it secures).
(e) Creditors of the trustee have a right of subrogation and are entitled to bring in their own name an action to enforce the trustee's right of indemnity and lien over the trust assets.
(f) The creditors' right of subrogation is a proprietary right that includes the right to exercise the trustee's lien and constitutes a charge upon all the assets of the trust estate.
134 Robson J then turned to consider the conflicting decisions concerning the nature of the trustee's right of indemnity where the trustee is entitled to be indemnified out of the assets of the trust for a liability incurred on behalf of the trust. His Honour considered the question of statutory interpretation and what is required by the principle of "one common law of Australia" and held that the proper course was for him to follow the reasoning in Re Independent Contractor: at [257]-[260].
135 As to the question of statutory construction, Robson J looked to the legislative history of the corporations legislation over the years, noting that the Corporations Act and Companies Act, with which Re Enhill and Re Suco Gold were concerned, are different statutes but that they are in pari materia. After setting out the relevant principles his Honour drew the following conclusions at [310]-[317]:
(1) the words of one legislature cannot be considered to bind the meaning intended by another legislature. The task of the court is to determine the will of the legislature that passed the Act and that task cannot logically be accomplished by looking to the expressed will of another legislature;
(2) the Full Court in Re Enhill, which it had been submitted was binding on Robson J, considered the Companies Act, which had been passed by the Victorian Parliament in 1961. It was not correct to say that the will of the Victorian Parliament or the interpretation of that will by the courts is a binding statement as to the meaning of words used by the Commonwealth Parliament in 2001;
(3) the "pages of the law reports are not blank" and the decision in Re Enhill remains highly persuasive. The words considered in Re Enhill were similar to those under consideration by Robson J;
(4) the difficulty in the case arose from the fact that the same can be said about the decision in Re Suco Gold, which was also a decision of a Full Court considering the South Australian Companies Act, part of the national uniform legislation considered by the Full Court in Re Enhill and equally a precursor to the Corporations Act;
(5) the same conclusion can be drawn in relation to the principle that a "legislature is assumed to know the judicial interpretation placed on the statutory words [by the court of another jurisdiction] and intended that interpretation to apply to the re-enactment". The Commonwealth legislature may have known and intended the interpretation placed on the words in Re Enhill, but the same could be said for the interpretation given in Re Suco Gold; and
(6) uniformity of interpretation of a Commonwealth Act is to be preferred wherever possible.
136 Ultimately, Robson J concluded at [330]-[333] that he did not consider that either Re Enhill or Re Suco Gold was a binding precedent in interpreting the Corporations Act but nevertheless was of the view that each decision remained highly persuasive. His Honour noted that, given the Corporations Act is a Commonwealth statute, there was a preference for uniform interpretation. In light of that, Robson J posed the following questions: whether the reasoning in Re Enhill or Re Suco Gold is sufficiently persuasive that it should be extended in its application to the Corporations Act and whether the reasoning in Re Independent Contractor is plainly wrong. His Honour gave the following answers to those questions:
he did not think the reasoning in Re Enhill was sufficiently persuasive to extend its application to the Corporations Act;
insofar as Re Suco Gold is consistent with the line of cases leading to the conclusion that the trustee's right of indemnity is trust property available only to meet trust liabilities (and Re Independent Contractor), it was sufficiently persuasive to extend its application to the Corporations Act. But as to whether the priority regimes apply to trust property, Robson J declined to extend the application of Re Suco Gold; and
he was not satisfied that the decision of Brereton J in Re Independent Contractor that the trustee's right of indemnity is not personal property of the trustee but is held on trust for the trust creditors was plainly wrong. His Honour said that he agreed with the decision in Re Independent Contractor.
137 His Honour then turned to consider the common law and at [363]-[367] observed that he was required to apply the common law of Australia in the context of a Commonwealth statute; that the Corporations Act refers to a common law term, "property of the company"; and that common law is the common law of Australia. His Honour held that in applying the Corporations Act he was required to apply the common law of Australia as reflected in the numerous cases concerning the nature of a trustee's right of indemnity. His Honour also noted that he must have regard to the High Court's decision that there is only one common law of Australia and that he ought not find that the interpretation of s 433(3) is different in Victoria than it is in New South Wales. In the result Robson J found that he was not bound by Re Suco Gold or Re Enhill, which his Honour described at [362] as "anomalous", "not representative of the common law as it is understood in other jurisdictions" and "not a proper expression of the common law of Australia", and that he should follow Re Independent Contractor: at [371]. His Honour also held, relying on Re Independent Contractor, that the trust assets should be distributed pari passu among the trust creditors.
138 I invited Messrs Kite and Hutchins to provide submissions on the effect of Re Amerind. They submitted that they have sought the Court's advice on whether employee entitlements are to be dealt with in accordance with s 556(1) of the Corporations Act. Relying on the decision in Re Suco Gold, they had advanced the view that pre-administration claims ought to be paid in accordance with the statutory order of priority in a winding up.
139 Messrs Kite and Hutchins submitted that the problem with the reasoning in Re Independent Contractor is that it overlooks the beneficial interest created by the trustee's lien. They further submitted that the decision in Re Amerind adds little by way of analysis on the critical question of why the trustee's lien is not "property of the company", whose property includes equitable interests. Messrs Kite and Hutchins contended that property of the company includes all valuable rights, even if the legal or equitable right is imperfect or requires the assistance of the Court for enforcement. In the circumstances, they remained of the view that they would be justified in applying s 556 to employee claims, notwithstanding that there are two single first instance decisions against that proposition and that Re Enhill and Re Suco Gold dealt with the predecessors to s 556.
140 I am unable to accept the position put by Messrs Kite and Hutchins. With respect, Robson J reached his conclusion in Re Amerind after considering in detail the nature of the trustee's indemnity and lien. His Honour was not persuaded that either was property of the company and thus that the statutory priority regime would apply. I agree. Messrs Kite and Hutchins have not demonstrated that decision or the decisions in Re Independent Contractor and Woodgate are plainly wrong. I would follow those decisions and decline to make the direction sought.
141 Messrs Kite and Hutchins requested that if I was not persuaded to make the direction sought, as I am not, that I make a direction to the contrary effect. That is, a direction that the priority regime set out in s 556 of the Corporations Act does not apply. While that is evident from these reasons, for clarity I will make a direction to that effect.