Plaintiffs v Interested parties

CORPORATIONS LAW - Whether receivers obliged to pay preferential accrued employee entitlements incurred by the trustee in carrying out the trust out of trust assets under s 433 of the Corporations Act.

TRUSTS - Nature of the trustee's right of indemnity - Nature of trust creditors right of subrogation - Whether trustee's right of exoneration is 'property of the company' for the purposes of the priority regimes in the Corporations Act - Whether the property subject to the lien supporting the trustee's right of exoneration is 'property of the company' for the purposes of the priority regimes in the Corporations Act - Whether the trustee's right of indemnity or the property subject to the lien supporting the trustee's right of indemnity is available to creditors generally, or is only available for creditors of the trust to meet trust liabilities.

SECURITIES - Whether assets are properly categorised as circulating assets for the purposes of the Personal Properties Securities Act 2009 (Cth) (PPSA) - Section 340 definition of circulating assets.

SECURITIES - Whether party with a secured interest under the PPSA gave consent for asset to be used in the course of everyday business - Whether a 'retention of title' clause in a principal agreement gives rise to separate security agreements on each delivery of goods under the principal agreement.

STATUTORY INTERPRETATION/STARE DECISIS - Meaning of one common law of Australia - Whether a court's decision concerning the interpretation of state legislation is binding when interpreting in pari materia Commonwealth legislation when there are conflicting interpretations of the relevant term by state courts.

For Mathew James Byrnes and Andrew Stewart Reed Hewitt (in their capacity as joint and several receivers and managers of Amerind Pty Ltd (receivers and managers appointed) (in liquidation)

For Brent Morgan in his capacity of liquidator of Amerind Pty Ltd (receivers and managers appointed) (in liquidation)

1 Amerind Pty Ltd (receivers and managers appointed) (in liquidation) (Amerind) carried on a business, solely in its capacity as trustee of the Panel Veneer Processes Trading Trust, manufacturing and distributing decorative and architectural finishes.

2 Amerind had a number of facilities and accounts with the Bendigo and Adelaide Bank Limited (the bank). These facilities were secured by a range of securities.

3 On 6 March 2014, the bank sent a notice to Amerind demanding repayment of, and terminating, the existing facilities.

4 On 11 March 2014, the sole director of Amerind, Mr Naja David, resolved to appoint Brent Leigh Morgan, James Marc Imray and Geoffrey Philip Reidy of Rogers Reidy as the joint and several administrators to Amerind (the administrators), pursuant to s 436A of the Corporations Act 2001 (Cth) (Corporations Act). Also on 11 March 2014, the bank appointed Mathew James Byrnes and Andrew Stewart Reed Hewitt as receivers and managers of Amerind (the receivers).

5 On 13 August 2014, Amerind's creditors resolved that the company be wound up, and the administrators were appointed as the liquidators.

6 The receivers traded on after their appointment and have realised the assets Amerind held on trust. The bank has been paid out through the realisation of debts due to Amerind, that had been assigned by Amerind to the bank as security. The bank recovered some $20 million.

7 After providing for what the receivers consider the retention of a just estimate of remuneration of the receivers, the net surplus from the receivers' realisation of Amerind's assets said to be available for distribution to creditors is some $1,619,018,[1] (the receivership surplus).

8 Pursuant to the orders of Sifris J dated 24 December 2015, the following parties filed an appearance with the Court indicating their intention to be heard in this proceeding regarding a possible claim or interest in the receivership surplus. These entities have been given leave to appear as interested parties:

(a) The Commonwealth Department of Employment (the Commonwealth), who paid accrued wages and entitlements to the former employees of the business under the Fair Entitlements Guarantee Scheme and now seeks to recover those moneys as a priority under ss 433 and 556 of the Corporations Act from the receivers. By virtue of s 560 of the Corporations Act, the Commonwealth has the same right of priority in respect of its advances that the employees who received the payments would have had under ss 433 and 556 of the Corporations Act.

(b) Carter Holt Harvey Wood Products Pty Ltd (CHH) claims to be a secured creditor of Amerind behind the bank and claims to be entitled to moneys from the receivership surplus. CHH argued that moneys claimed by the Commonwealth should be available to the unsecured creditors (as opposed to being available to meet the priority payments).

(c) Alpine MDF Industries Pty Ltd (Alpine) also claims to be a secured creditor under a 'retention of title' arrangement.

(d) Mrs Kathryn David, the former wife of Mr Naja David, also filed an appearance. Mrs David notified the Court that she did not intend to appear or make submissions at the hearing of the present application brought by the receivers, on the basis that the receivership surplus will be paid into Court, subject to the determination and payment of any priority amount to the Commonwealth and the receivers' remuneration and expenses, and that she would appear at subsequent hearings concerning the distribution of any receivership surplus.

(e) The liquidator (Mr Morgan - the other two liquidators have resigned) of Amerind also has an interest in the distribution of the proceeds of the realisation of Amerind's assets that are currently in the hands of the receivers.

9 The receivers also sought to recover certain costs out of the receivership surplus.

10 In this proceeding, the receivers seek directions on seven discrete issues concerning the distribution of the receivership surplus and on certain important issues arising in the receivership.

11 Amerind carried on, as trustee, the business of a manufacturer and distributor of decorative architectural finishes and panel products throughout Australia. Amerind purchased both raw stock, which it manufactured into finished produce, and finished stock, which it on-sold as a wholesaler to third parties. The products sold included commodity products such as particleboards, medium-density fibreboard, plywood and whiteboard.

12 Amerind's head office was located in South Melbourne. The company operated from manufacturing sites throughout Australia. The manufacturing sites also operated as internal and external distribution centres. Amerind also had distribution centres located at various sites in Victoria, ACT, Queensland and Western Australia. At the appointment date of the receivers, on 11 March 2014, Amerind had 174 staff.

13 Prior to the receivers' appointment, Amerind had the following finance facilities with the bank:

(a) a 'commercial term facility' with a facility limit of $3,000,000 (commercial term facility);

(b) a 'trade finance facility - multi option' with a facility limit of $4,000,000 (trade finance facility);

(c) a 'debtor finance facility' with a facility limit of $18,000,000 ('pre-appointment debtor finance facility').

The commercial term facility and the trade finance facility were subject to the bank's 'standard loan and security terms.'

14 Between 20 December 2012 and 6 March 2014, Amerind traded with the assistance of the pre-appointment debtor finance facility such that all of its accounts (ie book debts) were purchased by the bank. The bank maintained a separate pledge account for the purpose of the pre-appointment debtor finance facility, which allowed Amerind to view the funds available for drawdown under the pre-appointment debtor finance facility, at any given time.

15 The operation of the pre-appointment debtor facility was as follows. On a daily basis, Amerind 'offered' to sell the bank all of the accounts/book debts that it had generated since the last offer.[2] It did this by automatically uploading a schedule of all unpaid invoices raised by the company into the bank's debtor finance online portal.

16 The bank, at its discretion, could accept or refuse to purchase all or some of the accounts. All of Amerind's rights, title and interest in the accounts passed to the bank upon acceptance by the bank of Amerind's offer. The bank could, at its discretion, give the account debtor written notice of the assignment to perfect its legal title to the account.

17 The purchase price paid by the bank for each account was the full face value of the account. All accounts, however, were assigned a 'reserve amount' of between 15 and 100 per cent of the full face value. The purchase price for all assigned accounts, less the reserve amount, (the drawdown amount) was shown in the debtor finance ledger. The drawdown amount was available to Amerind and was paid by the bank into Amerind's trade account at Amerind's request.

18 Upon payment of the account (either in part or in full) the bank would make the reserve amount (in part or in full) available in the debtor finance ledger, which would be applied in reduction of other amounts owing to the bank and then paid to Amerind.

19 Upon termination of the pre-appointment debtor finance facility and payment of all amounts owing to the bank under the pre-appointment debtor finance facility, the bank was obliged to pay any residual reserve amount to Amerind.

20 Funds paid by debtors, in payment of the accounts, were paid into the debtor account. The bank conducted daily 'sweeps' of the debtor account so that all moneys held in the debtor account were reduced to nil each day. Although the debtor account was in Amerind's name, Amerind had no access to funds in the debtor account.

21 Funds 'swept' away from the debtor account were retained by the bank. The bank accounted for amounts received in the debtor finance ledger and the drawdown amount was available to be paid by the bank in consideration for the accounts assigned. It was not possible on the appointment date to identify which portion of the drawdown amount available on that day was referrable to a specific account, because funds available for drawdown in the debtor finance ledger were not directly attributable to any particular account.

22 Most of the funds in the trade account at any given time were attributable to amounts drawn down by Amerind under the pre-appointment debtor finance facility. However, some other amounts were also credited to the trade account where Amerind's customers paid for goods with cash or credit card, at the point of sale.

23 As noted above, on 6 March 2014, the bank terminated the debtor finance facility and informed Amerind that all debtor collections were to be placed towards permanent debt reduction of the facility.

24 Later that day, the bank gave notice demanding repayment and terminating the pre-appointment facilities.

25 On 11 March 2014, the administrators were appointed to Amerind, pursuant to s 436A of the Corporations Act. Shortly thereafter, also on 11 March 2014,, the bank appointed the receivers to Amerind (the appointment date).

26 On or around the appointment date, the bank sent a 'notice of assignment of accounts of the company' to all of Amerind's debtors.

27 On or around 11 March 2014, the bank granted the administrators a limited indemnity for their remuneration, costs and expenses of the administration of Amerind.

28 On and immediately following the appointment date, the receivers decided to continue to trade Amerind's business. Mr Byrnes, as one of the receivers, deposes that it was the receivers' view, given the nature of Amerind's business and its assets, that trading the business, whilst seeking a purchaser for the business (and Amerind's assets), would maximise the chances for a sale or partial sale of the business as a going concern. Mr Byrnes deposes that, in his experience, a sale as a going concern maximises the chance of receiving the best possible price for Amerind's business and assets.

29 On 20 March 2014, to allow Amerind's business to continue to trade and preserve its value in the short term, the receivers applied to the Court for directions that they were justified in selling or disposing of stock over which the bank had perfected a security interest in, but which Amerind does not, or may not own.

30 On 2 April 2014, the administrators sought and were granted an extension of the convening period under ss 439A(6) and 447A of the Corporations Act until 6 August 2014.[3]

31 On 15 April 2014, directions were made confirming that the receivers were justified and acting reasonably in dealing with the abovementioned stock in the ordinary course of business.

32 As at the appointment date, Amerind held the following main categories of assets: cash at bank, stock, property, plant and equipment (comprising vehicles machinery and other equipment) and reserve amounts, contingently owed to Amerind under the pre-appointment debtor finance facility.

33 Where there was sufficient stock on hand to complete a customer order, business was carried on as usual. Where there was insufficient stock on hand, additional stock was ordered to allow for the completion of approved customer orders. In addition, some high turnover items and items to finish raw stock were also purchased by the receivers.

34 On or about 14 April 2014, the receivers announced that Amerind would cease to trade on a 'business as usual' basis and would transition to a 'wind down' phase. Hereon, the focus of the receivers was to sell as much of the remaining stock as possible, close to the ordinary pricing, and once the fast moving stock had been disposed of at or above cost, some stock was sold as bulk sales or at auction during the wind-down period.

35 Mr Byrnes deposes that as a result of their trading activities, the receivers have realised stock and plant at higher values than he believes would have been achieved had the receivers not traded the business. He says that the receivers have also likely generated a gross profit from trading.

36 On 13 August 2014, the administrators convened the second meeting of Amerind's creditors. At this meeting, Amerind's creditors resolved that Amerind be wound up and the administrators were appointed as joint and several liquidators of Amerind.

37 The receivers are at the conclusion of their appointment. They have realised the vast majority of Amerind's assets and, subject to the determination of the issues in this proceeding, will be in a position to retire. The issues for determination are set out below in turn.

Issue 1 - Is the receivership surplus trust property?

38 Are the receivers justified in proceeding on the basis that the receivership surplus (or any part of it) is properly characterised as trust property, that is, property held on trust?

39 None of the parties dispute that, at all material times, Amerind acted solely as the trustee of the Panel Veneer Processes Trading Trust. I consider it is only necessary to briefly refer to the evidence that supports the finding that Amerind so acted.

40 The trust was settled pursuant to a trust deed dated 22 December 1976. The trust deed states that the trustee would purchase, and thereafter carry on, the business previously carried on at 17 Charles Street, Brunswick by Panelveneer Processors Pty Ltd. The trust deed gives the trustee broad powers to do all things typically associated with carrying on a business.

41 A document titled 'Panelveneer Processors Trading Trust Unitholders Deed' indicates that Amerind conducted the business in its capacity as trustee. Amerind produced annual special purpose reports, end of year financial statements and annual reports for the trust. The audit of the special purpose finance report for the financial year ended 30 June 2000 states that Amerind acted in its capacity as trustee and 'liabilities have been incurred on behalf of the trust in the company's capacity as corporate trustee.' Various minutes of meetings refer to the activities being undertaken by the trust in operating the company's business.

42 The Australian Taxation Office (ATO) recorded Amerind as 'the trustee for Panelveneer Processors Trading Trust'; and the branch code, issued by the ATO to the receivers for the purposes of lodging the company's Business Activity Statements, was in respect of the trust's ABN.

43 Certain other documents relating to Amerind either do not refer to the trust at all, or mention both Amerind and the trust. Some insurance policies issued to Amerind did not refer to the trust. Others were issued to Amerind in its capacity as trustee of the trust. Amerind's constitution does not mention the trust. An unexecuted shareholders' agreement refers only to Amerind acting in its own capacity. Two asset sale agreements list Amerind as a party, being the 'Panelveneer Sale Agreement' dated 22 December 1976 and the 'Presswell Sale Agreement' entered into in or around April 2000, without mentioning the trust. Various facsimiles from 'Amerind Forest Products' refer to the internal accounts of 'Amerind Pty Ltd' and 'Panelveneer' without reference to the trust.

44 Various hire purchase and lease agreements only refer to Amerind. Two contracts for the sale of real estate entered into by Amerind (one as vendor, the other as purchaser) only refer to Amerind (although there is advice from Amerind's accountants that Amerind, as purchaser, should 'use ... a separate trust' from the trust to purchase the property).

45 All leases of real estate located only mention Amerind in its own right. Employee records (contracts, tax file declarations, termination letters, PAYG summaries and similar documents) were not consistent in their referencing of Amerind in its own capacity, or as trustee to the trust. A deed of settlement entered into by Amerind to settle a County Court of Victoria proceeding makes no reference to the trust. For the most part, documents issued by suppliers to Amerind refer to Amerind only in that capacity - some documents do, however, make reference to the trust's ABN.

46 Whether a company trades in its own right or as trustee of a trust largely depends on factors which are specific to the circumstances at hand.[4] There is no one determinative factor or set criteria. Courts have, however, taken into account the following matters:

(a) the existence of constituent trust documents which establish a trust, including any draft trust documents which cross-reference one another;[5]

(b) whether accounts were maintained separately to the company's operational expenditure accounts and/or the company's own property;[6]

(c) whether the company's name in its capacity as trustee was noted on key employment documents, such as letters of employment and tax file declarations;[7]

(d) whether invoices rendered by the company in question were issued by the company in its capacity as trustee of the trust;[8]

(e) whether company meeting minutes disclosed the existence of a trust,[9] or disclosed that the company was operating as a trust;[10]

(f) whether expenses were accounted as receipts of the company as trustee;[11] and

(g) whether records, contained in the general ledger of the company, recorded activity consistent with the operation of a trust, such as the issue of units.[12]

47 Bearing these factors in mind, I find that Amerind traded solely in its capacity as trustee of the trust. Although the manner in which Amerind entered into agreements with third parties, including suppliers, lessors, insurers as well as Amerind's employees, did not involve consistent disclosure that it acted in its capacity as trustee of the trust, the following findings are warranted:

(a) the trust was constituted for the purpose of acquiring and then carrying on the business, and the trust deed equipped Amerind with sufficient powers to enable it to carry out this function;

(b) Amerind's financial records are consistent with it carrying on the business as trustee of the trust;

(c) Amerind's minutes of meeting specifically refer to Amerind trading as trustee of the trust (and in some cases, make specific reference to Amerind acting solely in that capacity);

(d) ATO records (and Amerind's lodgements with the ATO) reflect Amerind trading in its capacity as trustee of the trust; and

(e) Amerind entered into agreements with financiers which disclosed that it acted as trustee of the trust.

48 Finally, it is well understood in the commercial world that, for taxation and other reasons, businesses are regularly structured as trading trusts.

49 I am satisfied that it is appropriate to direct that the receivers are justified in proceeding on the basis that the receivership surplus is properly characterised as property of the trust.

50 Amerind was appointed trustee of the Panel Veneer Processes Trading Trust. Amerind's sole activity was to act as trustee. It had no assets of its own, save perhaps a nominal sum settled to establish the trust. The liabilities incurred were incurred by Amerind acting as trustee. The creditors that it had were therefore trust creditors. The company did not have its own money to meet trust liabilities and then seek to be reimbursed from the trust assets. Rather, the trustee 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 creditor. The moneys paid by the trustee to the creditors remained trust money, although the liability was that of the trustee.

51 As will be discussed below, in those circumstances, the trustee had a right in equity to be indemnified (a right of exoneration as opposed to recoupment) from the trust assets for liabilities it incurred on behalf of the trust. That right of indemnity is supported by an equitable lien over all the trust assets, but is constrained to the limit of the liabilities that it secures. 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, exercise the trustee's lien, and the right to be indemnified, against the trust assets. The moneys so recovered would be trust moneys.

52 The trust creditors were not in competition with other non-trust creditors of the trustee, as all the liabilities to creditors were incurred by the trustee acting as trustee.

53 The Commonwealth, liquidator, and the receivers claim that the trustee's right of indemnity is 'property of the company.' As the cases below establish, the trust assets, at all times, remain trust assets. The trust assets may be used to indemnify creditors for liabilities incurred on behalf of the trust. The trust creditors themselves have equitable rights to be subrogated to the rights of the trustee to be indemnified from the trust assets. 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, the right of indemnity and lien may only be used to satisfy liabilities incurred on behalf of the trust.

54 In the case of a company that acts solely as a trustee (such as Amerind), liabilities could be incurred by the trustee personally, for which the trustee would not be entitled to an indemnity from the trust assets, if, for example, the trustee acted improperly beyond its powers as a trustee. Such creditors would not be entitled to be subrogated to the trustee's right of indemnity over the trust assets that it may otherwise have had. A trustee's right of indemnity is conditional on the trustee's account with the beneficiaries being clear, thus if a trustee is under an obligation to make good some loss or damage arising from a breach to the trust, such obligation would be deducted from the right of indemnity (and the related right of subrogation).

55 Turning to issue 2, the first question is if the receivership surplus (or any part of it) is trust property, are the receivers justified in proceeding on the basis that the priority regime in ss 433(3), 556 and 560 of the Corporations Act applies 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) (PPSA) and s 51C of the Corporations Act?[13]

56 On those issues, the receivers and the Commonwealth made separate submissions but were in agreement that the priority regime should apply.

57 Regrettably, there are conflicting authorities on the issue of whether ss 433(3), 556 and 560 of the Corporations Act applies in the circumstances where the assets of a company are held on trust. The question of the nature of a trustee's right of indemnity has been considered at the appellate level in Re Enhill Pty Ltd,[14] a decision of the Full Court of Victoria, and in Re Suco Gold Pty Ltd (in liquidation),[15] a decision of the Full Court of South Australia.

58 More recently Brereton J of the Supreme Court of New South Wales, in Re Independent Contractor Services (Aust) Pty Ltd (in liq) (No 2),[16] held that distributions of trust property were not subject to the relevant priority regime of the Corporations Act, as the regime only applied to property of the company and that the trustee's right of indemnity is not property of the company available to all creditors.

59 In Re Independent, Brereton J considered the application of s 556 of the Corporations Act to the distribution of trust property, and a liquidator's obligation to pay superannuation guarantee charge liabilities out of that trust property, in accordance with s 556(1)(e)(i) of the Act. His Honour held:[17]

....as to whether s 556 has any application in this context, the 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 (SA) Companies Act 1962_,_ 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.[18] 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;[19] or that the trust creditors' claims rank pari passu (as suggested by the authors of Jacobs' Law of Trusts,[20] and implicitly by McPherson J[21] and R P Meagher QC[22]).

In my judgment, the latter view is to be preferred. The trustee's lien does not attach to any particular asset, nor secures any particular liability, but is in the nature of a floating charge over all the trust assets,[23] and secures the balance of the account as between the trustee and the beneficiary from time to time.[24] The creditors do not acquire any direct interest in trust assets, but have a right to be subrogated to the trustee's equitable lien; theirs is a derivative right, so that if there is no balance due to the trustee from the beneficiary, the creditor can assert no claim against the assets.[25] The creditor's right to be subrogated to the trustee's indemnity thus does not make the creditor a secured creditor of the trust in the ordinary sense, but gives the creditor a right to enforce the trustee's indemnity, only to the extent that the indemnity exists in the hands of the trustee. Where there are multiple creditors, they share that right. As 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.[26] ...

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. But even if the statutory order of priority did apply, ICS's superannuation guarantee charge liability would not, in the circumstances of this case, be entitled to priority under s 556(1)(e)(i), because the contractors, in respect of whom it is payable, were not "employees" of ICS for the purposes of s 556.

60 His Honour's reasons, given in relation to s 556 of the Corporations Act, are relevant to s 433 (which applies to the receivers in this case), as s 433 incorporates, by reference, the priorities in s 556 of the Corporations Act:

61 Section 433 provides:

Property subject to circulating security interest--payment of certain debts to have priority

(2) This section applies where:

(a) a receiver is appointed on behalf of the holders of any debentures of a company or registered body that are secured by a circulating security interest, or possession is taken or control is assumed, by or on behalf of the holders of any debentures of a company or registered body, of any property comprised in or subject to a circulating security interest; and

(b) at the date of the appointment or of the taking of possession or assumption of control (in this section called the relevant date):

(i) the company or registered body has not commenced to be wound up voluntarily; and

(ii) the company or registered body has not been ordered to be wound up by the Court.

(3) In the case of a company, the receiver or other person taking possession or assuming control of property of the company must pay, out of the property coming into his, her or its hands, the following debts or amounts in priority to any claim for principal or interest in respect of the debentures:

(a) first, any amount that in a winding up is payable in priority to unsecured debts pursuant to section 562;

(b) next, if an auditor of the company had applied to ASIC under subsection 329(6) for consent to his, her or its resignation as auditor and ASIC had refused that consent before the relevant date--the reasonable fees and expenses of the auditor incurred during the period beginning on the day of the refusal and ending on the relevant date;

(c) subject to subsections (6) and (7), next, any debt or amount that in a winding up is payable in priority to other unsecured debts pursuant to paragraph 556(1)(e), (g) or (h) or section 560.

62 Section 556 provides:

(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), or subsection 7015(5) (audit of administration books by ASIC) or section 9027 (review by another registered liquidator) of Schedule 2;

(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.

(1AA) Paragraph (1)(a) does not apply to expenses:

(a) incurred by the administrator of a deed of company arrangement; and

(b) relating to a debt or claim admissible to proof under subsection 553(1A);

unless the administrator is personally liable for the expenses.

Superannuation guarantee charge

(1A) The amount or total paid under paragraph (1)(e) to, or in respect of, an excluded employee of the company must be such that so much (if any) of it as is attributable to non-priority days does not exceed $2,000.

(1AB) For the purposes of paragraph (1)(e), if:

(a) the company has a superannuation guarantee shortfall for a quarter; and

(b) the shortfall relates to one or more employees; and

(c) the quarter ends before the relevant date;

superannuation guarantee charge in respect of the quarter is taken to be payable by the company in respect of services rendered to the company by those employees before the relevant date.

(a) the company has a superannuation guarantee shortfall for a quarter; and

(b) the shortfall relates to one or more employees; and

(c) the relevant date occurs during the quarter; and

(d) the relevant date is not the first day of the quarter;

then:

(e) for the purposes of paragraph (1)(e), so much of the superannuation guarantee charge in respect of the quarter as is attributable to the period before the relevant date is taken to be payable by the company in respect of services rendered to the company by those employees before the relevant date; and

(f) the remainder of the superannuation guarantee charge in respect of the quarter is taken:

(i) to be an expense referred to in paragraph (1)(a); and

(ii) not to be an amount of superannuation guarantee charge referred in paragraph (1)(e).

(a) the company has a superannuation guarantee shortfall for a quarter; and

(b) the shortfall relates to one or more employees; and

(c) the relevant date is the first day of the quarter;

the superannuation guarantee charge in respect of the quarter is taken:

(d) to be an expense referred to in paragraph (1)(a); and

(e) not to be an amount of superannuation guarantee charge referred in paragraph (1)(e).

(1AE) For the purposes of paragraph (1)(e), if:

(a) the company has a superannuation guarantee shortfall for a quarter; and

(b) the shortfall relates to one or more employees; and

(c) the quarter begins after the relevant date; and

(d) one or more payments were made by the company during the quarter on account of wages payable to those employees in respect of services rendered to the company by those employees before the relevant date; and

(e) those payments were made as a result of an advance of money by a person after the relevant date for the purpose of making those payments;

then:

(f) for the purposes of paragraph (1)(e), so much of the superannuation guarantee charge in respect of the quarter as is attributable to those payments is taken to be payable by the company in respect of services rendered to the company by those employees before the relevant date; and

(g) the remainder of the superannuation guarantee charge in respect of the quarter is taken:

(i) to be an expense referred to in paragraph (1)(a); and

(ii) not to be an amount of superannuation guarantee charge referred in paragraph (1)(e).

(a) the company has a superannuation guarantee shortfall for a quarter; and

(b) the shortfall relates to one or more employees; and

(c) the relevant date occurs during the quarter; and

(d) one or more payments were made by the company during the quarter on account of wages payable to those employees in respect of services rendered to the company by those employees before the relevant date; and

(e) those payments were made as a result of an advance of money by a person after the relevant date for the purpose of making those payments;

then:

(f) for the purposes of paragraph (1)(e), so much of the superannuation guarantee charge in respect of the quarter as is attributable to either or both of the following:

(i) those payments;

(ii) the period before the relevant date;

is taken to be payable by the company in respect of services rendered to the company by those employees before the relevant date; and

(g) the remainder of the superannuation guarantee charge in respect of the quarter is taken:

(i) to be an expense referred to in paragraph (1)(a); and

(ii) not to be an amount of superannuation guarantee charge referred in paragraph (1)(e); and

(h) subsections (1AC) and (1AD) do not apply to the superannuation guarantee charge in respect of the quarter.

(1AG) Subsections (1AC) to (1AF) apply to a liability to pay the amount of an estimate of superannuation guarantee charge for a quarter in the same way as they apply to superannuation guarantee charge payable for the quarter.

(1B) The amount or total paid under paragraph (1)(g) to, or in respect of, an excluded employee of the company must be such that so much (if any) of it as is attributable to non-priority days does not exceed $1,500.

(1C) A payment under paragraph (1)(h) to an excluded employee of the company must not include an amount attributable to non-priority days.

company means a company that is being wound up.

deferred expenses, in relation to a company, means expenses properly incurred by a relevant authority, in so far as they consist of:

(a) remuneration, or fees for services, payable to the relevant authority; or

(b) expenses incurred by the relevant authority in respect of the supply of services to the relevant authority by:

(i) a partnership of which the relevant authority is a member; or

(ii) an employee of the relevant authority; or

(iii) a member or employee of such a partnership; or

(c) expenses incurred by the relevant authority in respect of the supply to the relevant authority of services that it is reasonable to expect could have instead been supplied by:

(i) the relevant authority; or

(ii) a partnership of which the relevant authority is a member; or

(iii) an employee of the relevant authority; or

(iv) a member or employee of such a partnership.

employee, in relation to a company, means a person:

(a) who has been or is an employee of the company, whether remunerated by salary, wages, commission or otherwise; and

(b) whose employment by the company commenced before the relevant date.

excluded employee, in relation to a company, means:

(a) an employee of the company who has been:

(i) at any time during the period of 12 months ending on the relevant date; or

(ii) at any time since the relevant date;

or who is, a director of the company;

(b) an employee of the company who has been:

(i) at any time during the period of 12 months ending on the relevant date; or

(ii) at any time since the relevant date;

or who is, the spouse of an employee of the kind referred to in paragraph (a); or

(c) an employee of the company who is a relative (other than a spouse) of an employee of the kind referred to in paragraph (a).

non-priority day, in relation to an excluded employee of a company, means a day on which the employee was:

(a) if paragraph (a) of the definition of excluded employee applies - a director of the company; or

(b) if paragraph (b) of that definition applies - a spouse of an employee of the kind referred to in paragraph (a) of that definition; or

(c) if paragraph (c) of that definition applies - a relative (other than a spouse) of an employee of the kind referred to in paragraph (a) of that definition;

even if the day was more than 12 months before the relevant date.

quarter has the same meaning as in the Superannuation Guarantee (Administration) Act 1992.

relevant authority, in relation to a company, means any of the following:

(a) in any case - a liquidator or provisional liquidator of the company;

(c) in any case - an administrator of the company, even if the administration ended before the winding up began;

(d) in any case - an administrator of a deed of company arrangement executed by the company, even if the deed terminated before the winding up began.

retrenchment payment, in relation to an employee of a company, means an amount payable by the company to the employee, by virtue of an industrial instrument, in respect of the termination of the employee's employment by the company, whether the amount becomes payable before, on or after the relevant date.

superannuation contribution, in relation to a company, means a contribution by the company to a fund or scheme for the purposes of making provision for, or obtaining, superannuation benefits (including defined benefits) for an employee of the company, or for dependants of such an employee.

If:

(a) a payment has been made by a company:

(i) on account of wages; or

(ii) on account of superannuation contributions (within the meaning of section 556); or

(iii) in respect of leave of absence, or termination of employment, under an industrial instrument; and

(b) the payment was made as a result of an advance of money by a person (whether before, on or after the relevant date) for the purpose of making the payment;

then:

(c) the person by whom the money was advanced has the same rights under this Chapter as a creditor of the company; and

(d) subject to paragraph (e), the person by whom the money was advanced has, in the winding up of the company, the same right of priority of payment in respect of the money so advanced and paid as the person who received the payment would have had if the payment had not been made; and

(e) the right of priority conferred by paragraph (d) is not to exceed the amount by which the sum in respect of which the person who received the payment would have been entitled to priority in the winding up has been diminished by reason of the payment.

64 If the decision in Re Independent correctly states the law in Australia, it would follow that distributions of trust property are not subject to the priorities in s 433(3) of the Act.

65 The receivers, the Commonwealth and liquidator all submitted that Re Independent should not be followed in this case and, I am bound to, and should, follow Re Enhill, a decision which supports the receivers' contention.

66 CHH submitted that I should follow Re Independent, and in so doing I would not be departing from Re Enhill. It is submitted that insofar as Re Enhill says that the right of indemnity is a personal right of the trustee and asset of an insolvent corporate trustee available, it is available to pay costs and expenses of a liquidator, Brereton J says nothing inconsistent with that.[27]

67 I will firstly consider the circumstances in which s 433 is enlivened and then set out the authorities that lead to the conclusion that the right of indemnity of the trustee does not constitute property of the company and that therefore the reasoning in Re Independent is preferable to Re Enhill and should be applied to the facts before me.

68 In this case, the receivers were appointed on behalf of the bank, which in substance held debentures of Amerind that were secured by, inter alia, a circulating security interest, within the meaning of s 433(2). Therefore, subject to what is said below about the characterisation of Amerind's assets and some of those assets being 'circulating assets', prima facie the receivers are subject to the obligations in s 433(3).

69 One line of argument put forward on behalf of CHH[28] is that s 433 does not apply because the bank's security is not a debenture, as required by s 433(1)(a), within the meaning of s 9 of the Corporations Act, by virtue of exception (a) to the definition of 'debenture'.[29]

70 The Commonwealth submitted that to accept CHH's argument would render s 433 ineffective and would be inconsistent with longstanding legislative intention. The term 'debenture' has been used in s 433, and its antecedent provisions, since 1897 as a means to protect preferential creditors to debtors whose business would not, in most cases, 'comprise or form part of a business of borrowing money or providing finance.'[30] The Commonwealth submits that in order to uphold the legislative intent of the provision it is necessary to give 'debenture', as used in s 433, its ordinary meaning, being a document that either creates or acknowledges debt owed by a company.[31]

71 Section 9 of the Corporations Act provides that the definitions contained therein apply 'unless the contrary intention appears.'[32] The Commonwealth says that as giving the meaning to debenture, as put forward by CHH, would defeat the legislative intention of s 433, there is a contrary intention appearing in this section. The receivers similarly submit that, if CHH is correct, then where a receiver is appointed by a bank to a non-bank borrower, the policy of the regime would be subverted, as s 433 would not apply, and employees would have no priority.

72 Further, it was submitted that to construe the provision as CHH submits, would create a perverse inconsistency with the regime that applies in the case of a liquidation and the regime that applies in the case of receivership, given that s 561, the complementary provision in the case of a liquidation, does not mention 'debenture'. CCH's construction of the provision would mean that in cases such as the present, where there is both a receivership and a liquidation, preferential creditors would receive priority under s 561 if the liquidators recovered the property, but not if it were the receivers.

73 The exception to the definition of a debenture in paragraph (a) can be traced back to 1989. The relevant Explanatory Memorandum stated that the exception was directed at exempting ordinary business loans from increased disclosure requirements, relating to debentures, and it is submitted by the Commonwealth, that it appears that its intersection with s 433 was overlooked. It is noted that in the 25 years since the exception was introduced, no court has adopted CHH's construction of debenture.

74 The Commonwealth and receivers submit that the undesirable outcomes referred to above can be avoided by giving 'debenture' its ordinary meaning, applying the chapeau of s 9 and not the exceptions to the definition of 'debenture', including exception (a).

75 I accept that 'debenture' in s 433 should be given its ordinary meaning and the exclusion paragraph (a) to the definition of 'debenture' in s 9 does not apply to limit the meaning of debenture in s 433(1)(a).

76 As s 433(3) prima facie applies, the issue thus becomes whether that section and the priorities in s 556 referred to therein apply to property held on trust by the relevant company.

77 The reference to 'property coming into his, her or its hands' in s 433, is a reference to property of the company. This construction is supported by s 433(2), which confirms that the property referred to in s 433(3) is property of the company. Accordingly, s 433(3) is enlivened if the receiver takes possession of property of the company.

78 The 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. The third priority category of debts or amounts, is that prescribed in 433(3)(c), that is, subject to sub-ss (6) and (7) of s 433, next, 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 (in substance, employee entitlements such as accrued wages and leave).

79 As mentioned above, the issue of whether the right of indemnity of the trustee may constitute property of the company, has been subject to considerable judicial consideration and differing views. As discussed below, the better view is that where a company acts solely as a trustee and has no assets of its own, it does not.

80 Brereton J's conclusion in Re Independent is in line with the authorities discussed below, that a trustee of a trading trust has a right of indemnity over the assets of the trust in respect of liabilities incurred on behalf of the trust. The trustee's right of indemnity is supported by an equitable lien over all the trust assets and secures the balance of the account as between the trustee and beneficiary from time to time. The trustee's creditors have a right to be subrogated to the trustee's equitable lien. The right to be subrogated does not make the creditor a secured creditor of the trustee in the ordinary sense but gives the creditor a right to enforce the trustee's indemnity, only to the extent that the indemnity exists in the hands of the trustee. Accordingly, the trustee's right of indemnity itself is subject to the creditors' equitable right of subrogation.

81 The receivers contend that the trustee's right of indemnity over the trust assets constitutes property of the company available for distribution amongst all its creditors. CHH, on the other hand, contends that the receivers' right of indemnity over the trust assets is not property of the company but is only available to meet the trust creditors.

82 The liquidators and the Commonwealth supported the submissions of the receivers that the trustee's right of indemnity and corresponding lien was 'property of the company'. The Commonwealth cites as authority Re Enhill, a decision of the Full Court of Victoria interpreting similar words as that in question in the present case in the Companies Act 1961 (Vic). Re Enhill found that the trustee's right of indemnity was property of the company, available to all creditors upon liquidation of the company. As discussed below, Re Enhill has not been followed in the Federal Court or in other states of Australia. I have found it is not binding on me, contrary to the submissions of the Commonwealth, for reasons discussed below.

83 Secondly, the Commonwealth submits that relevant securities were taken over Amerind in its capacity as trustee. The Commonwealth submits that the 'property' subject to the circulating security interests, although trust property, was therefore subject to those security interests. The Commonwealth submits that ss 433(2) and 561 apply to 'any property comprised in or subject to the circulating security interest.' The Commonwealth submits that it matters not whether such property is also trust property; if it is subject to a circulating security interest, it falls within the sections.

84 Whether or not the right of indemnity can be appropriately classified as a circulating asset will be discussed below. In any event, I reject the submission that s 433(2) applies to trust property if it is subject to a circulating security interest. In my opinion, the provision is referring to an equitable or legal interest belonging to the company. In my opinion, it does not refer to a legal or equitable interest belonging to somebody else. For example, if the company held an asset as a bare trustee, and the trustee had no right to any indemnity over the trust asset, I hardly consider that another person's property could be used to pay liabilities of the company that had not been incurred in carrying out its duties as trustee. In my opinion, the second ground does not take the Commonwealth's position any further than the first ground.

85 The Commonwealth's third ground is that ss 433(3) and 561 are concerned with payment out of property. 'Property' is defined broadly in s 9 of the Corporations Act to mean 'any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description and includes a thing in action.' The Commonwealth submits that there appears to be no dispute that the company had legal title to the assets subject to the circulating interests. The Commonwealth submits that it was therefore 'property' of the company for the purposes of ss 433(3) and 561.

86 The Commonwealth submits that the application of ss 433 and 561 to trust property finds support in the history and purpose of the provisions.

87 In my opinion, the 'property' referred to must be property of the company. To suggest that it covers property in the name of the company but that belongs to another person would be to overturn centuries of law recognising the distinction between the legal and beneficial ownership of assets.

88 In Re Suco Gold, a case concerning a trustee of two trusts, King CJ held that the liquidator was bound by the provisions of s 292 with respect to the payments of the company's debts and must pay them in accordance with the order of priority set out in s 292. In other words, s 292 was enlivened by the existence of the liabilities owed by the trustee in liquidation. The assets available to meet those liabilities incurred by the trustee were limited to the trustee's right of indemnity with respect to incurring those liabilities.

To the extent that each priority debt has been incurred in the performance of a particular trust he should have recourse to the property of that trust for the purpose of paying it. If there is a residue of assets of a particular trust, that residue should be applied to the payment of other debts applicable to that trust. If there is a deficiency in the assets of a particular trust, the non-parity debts applicable to that trust would have to rank pari passu. The unpaid balance, would, of course, rank for dividend out of the general assets of the company, but as there are no such assets that is an academic consideration.

90 King CJ held that the costs of the winding up were debts incurred by the trustee company in discharging its duties as trustee. Accordingly, this debt of the trust would be paid under s 292 in priority to other debts of the trustee from the trustee's right of indemnity. These rules applied to each of the two trusts.

91 It is important to note that Brereton J has held that this part of the judgment of King CJ is not accepted as good law, as s 556, the successor of s 292, only applies to property of the company. Thus, to enliven s 556, the company in receivership must have property of the company and, as King CJ held, the right of indemnity is not property of the company.

92 King CJ rejected the proposition that the trustee's right of indemnity was property of the company available to meet all creditors (as found in Re Enhill), but nevertheless held that s 292 of the Companies Act applied to determine the order in which the trustee paid its trust creditors from the trustee's indemnity over the trust assets. As discussed above, Brereton J agreed with King CJ that the trustee's right of indemnity was not personal property of the trustee, but disagreed that s 292 applied, as Brereton J said it only applied to 'property of the company', whereas King CJ held that it applied to determine the priority of payment of debts incurred by the trustee in carrying out its duties as trustee.

93 Jacobs J also held that the trustee's right of indemnity was not personal property of the trustee but remained a trust asset (as was found by King CJ). Jacobs J also held that s 292 of the Companies Act 1962 (SA) applied to the payment of liabilities incurred by the trustee in carrying out its duties under the trust. Matheson J agreed with both King CJ and Jacobs J.

94 In my opinion, for the reasons discussed below, the proper course for me is to adopt the reasoning of Brereton J in Re Independent, being that s 556 of the Corporations Act only applies to property of the company and does not apply to trust assets, that the trustee's right of indemnity is not property of the company, and that where there are multiple creditors of the trust, the creditors share pari passu in the right to be subrogated to the trustee's equitable lien to enforce the trustee's indemnity. Similar reasoning also applies to s 433.

95 As already mentioned, the Commonwealth and receivers submit that the trustee's right of indemnity is 'property of the company.'

96 For the following reasons, I do not accept that the corporate trustee's right of indemnity (and lien) is not property held in trust, but that it is the corporate trustee's own beneficial 'personal property.' The right of indemnity is over trust assets. The indemnity must be used to meet trust liabilities. The indemnity is not an exclusive right of the trustee. It may be exercised by the trust creditors through the right of subrogation. The indemnity is a right to be indemnified against claims by trust creditors. That requires that the indemnity be used to meet trust liabilities. The indemnity is not a personal asset of the trustee. It is trust property.

97 The cases discussed below indicate there are possibly four different lines of reasoning, which I briefly mention here, leading 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.

98 The authorities distinguish between a trustee's right of recoupment: where the trustee has paid a trust liability with his own money and then seeks to be indemnified from the trust assets; and a right of exoneration: where the trustee has incurred the liability and looks to the trust estate for the means to pay the liability. In the former case, where the creditor has been paid with the trustee's own money, the creditor has no rights against the trust estate, as he has been paid. In the latter case, the creditor is subrogated to the trustee's right of indemnity against the trust assets, and if the creditor is not paid, may take proceedings to enforce the indemnity against the trust estate.

99 I emphasise that the present case is concerned with exoneration, and not recoupment. In the present case, the trustee has no assets of its own with which to pay the trust creditors. Further, I note that there was no 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, nor that the trustee was under a current obligation to make good some loss or damage arising from a breach of trust.

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.

104 I turn to the authorities. The authorities on the trustee's right of indemnity usually start with Worrall v Harford,[34] where Lord Eldon the Lord Chancellor said:[35]

It is in the nature of the office of a trustee, whether expressed in the instrument, or not, that the trust property shall reimburse him all the charges and expences incurred in the execution of the trust. That is implied in every such deed. But it would be strange from that implication to conclude that the persons employed by them are therefore creditors of the trust fund.

105 In In re Johnson,[36] Jessel MR held that where an executor of a deceased estate carried on business with assets of the estate, as authorised by the deceased, the creditors of the executor, (for debts incurred by the executor in carrying on the business of the deceased), were entitled to enforce the executor's right of indemnity or lien against the trust assets to the extent of the liabilities incurred by the trustee. Jessel MR said that if the trustee's right of indemnity or lien was limited through the trustee acting in some unauthorised way, then the creditor's right to enforce the indemnity or lien would also be limited to the extent of the indemnity as reduced by the actions of the trustee.

106 Jessel MR recognised the right of the creditors to stand in the place of the executor and trustee and to claim the benefit of the right to the trustee's indemnity or lien over the trust assets. Jessel MR held that the creditor's right of subrogation is limited to the rights of the trustee. Accordingly, if the trustee has exercised his right of indemnity, then there is no further right of subrogation that a creditor of the trustee would retain. Thus, if the trustee exercised all his rights of indemnifying himself and used the moneys to pay some creditors and not another, then the creditor who was not paid would have no further rights of subrogation of the trustee's right of indemnity as the right would have been exhausted.

107 Similarly in In re Evans; Evans v Evans,[37] the administratrix of an intestate, a dealer in building materials, carried on the intestate's trade and bought cement for the purposes of the trade. The vendors recovered judgment against the administratrix for the price of the cement. The cement was sold along with other effects of the estate under an order in administration. The vendors of the cement applied in the administration action to have the proceeds of the sale applied in payment of their debt. Kay J refused this relief, but declared the vendors were entitled to a lien over the beneficial interest of the administratrix in the intestate's estate. On appeal it was held that as between the vendors and the administratrix, the cement was the property of the administratrix, but as between the administratrix and the estate, the cement belonged to the estate subject to the right of the administratrix to be indemnified for the price, if she was not a debtor to the estate. It was held that the vendors could not have any higher claim than hers and were not entitled to anything more than the order gave them.

108 Cotton LJ held that where an executor carried on the business of the deceased, the creditors of the executor did not have any direct claim against the deceased's estate. His Lordship held that the creditor had no greater right than to be substituted to the right of the executor to indemnity.[38] His Lordship also confirmed that if the executor is otherwise liable to the estate, the right of indemnity may be lost. Lindley LJ said that the creditors had no more right against the goods they had supplied to the executor carrying on the business in equity than at law, 'though they might obtain a right to stand in her shoes and be paid out of what was coming to her from the estate.'[39]

109 In In re Blundell, Blundell v Blundell,[40] the Court of Appeal held that a creditor of the person acting on behalf of the estate had an equity against the funds of the estate. Cotton LJ said:[41]

Creditors of the trustees in dealings carried on in pursuance of the trust are not cestuis que trust, but they have a right to the benefit of the right of the trustees to indemnity ...

110 The right of the creditor of a trustee to sue in equity to enforce a trustee's right of indemnity was recognised by the House of Lords in Dowse v Gorton.[42] In Dowse v Gorton the appellants were the executors of Luke Turner. Luke Turner had sold a business to John Gorton on terms. John Gorton died before all instalments had been paid. The executors of John Gorton continued to carry on the business acquired from Luke Turner and another business owned by John Gorton. The executors of Luke Turner claimed that any right of indemnity that the executors of John Gorton had to be indemnified out of the estate assets was subject to the estate's indebtedness for the unpaid instalments for the purchase of the business from Luke Turner.

111 Lord Macnaghten held that if, as in the case before him, the business had been properly continued the creditors, or if the creditors choose to treat it so, the executors were entitled to be indemnified, as against all liabilities properly incurred in carrying the business on. If the business had been improperly continued and the creditors choose to treat the continuance as improper, they may proceed, in the proper way, to make the executors accountable for the value of the assets in carrying on the business.[43] Lord Macnaghten also held that the indemnity of the executors was only limited by the amount of the assets which the testator has authorised the executors to employ in the business. He saw no reason why the indemnity should be limited to that portion of the assets which may have come into existence or changed its form since the testator's death.[44]

112 In Re Raybould; Raybould v Turner,[45] a trustee carried on his testator's colliery business, and in so doing let down the surface of the land and injured the building of an adjoining owner. The owner recovered damages against the trustee personally. The adjoining owner then claimed to be entitled to be paid directly out of the testator's estate the amount so recovered. Byrne J held that where damages were recovered against the trustee and he was acting reasonably within his authority, the trustee was entitled to the same indemnity that he would in the case where an ordinary creditor had a claim against the trustee in conducting the estate's business. Accordingly, the adjoining owner was able to have the benefit of the right to indemnity that the trustee had and obtain the indemnity direct from the testator's estate.

113 In Jennings v Mather,[46] Kennedy J, after citing Jessel MR in Re Johnson, held that the trustee's right of indemnity extended over all the assets of the trust and the trustee had a pecuniary interest in the trust assets. His Honour said that 'when the accounts come to be made up, if it should appear that nothing is due to the trustee on the trading, there is nothing in respect of which he needs to be indemnified, and his lien over the goods is gone; but until the accounts are made up, he is entitled to a lien over all the assets of the estate.'[47]

114 On appeal in Jennings v Mather,[48] Stirling LJ said that Kennedy J had accurately defined the legal position of the parties in the case. In Jennings v Mather, the trustee (Mather) under a creditor's deed was empowered by the deed to carry on a business for the benefit of creditors. In so doing, Mather incurred debts, for which he was personally liable. As judgment had been given against Mather for one of these debts, goods which were assets of the business, were taken in execution under that judgment. These goods were claimed by his trustee in bankruptcy, Mather having become bankrupt.

115 An interpleader was issued to determine the title to the goods. The Court of Appeal affirmed the decision of Kennedy J that, as Mather was entitled to an indemnity out of the trust estate against liabilities incurred by him, Mather had a prima facie right to a lien on the goods, which passed to Mather's trustee in bankruptcy. Therefore the trustee in bankruptcy of Mather was entitled to succeed on the issue as against the execution creditor.

116 Collins MR held that the goods which formed part of the trust estate under the deed were not liable to be taken in execution upon a judgment debt due from the trustee personally. Collins MR said that the trustee in bankruptcy was not entitled to claim that goods taken in execution passed to him as property of the bankrupt. He was entitled, however, to stand in the bankrupt's shoes with regard to any lien the bankrupt may have on the trust estate. Although the goods were now in the possession of the execution creditor, the trustee in bankruptcy of the debtor was entitled to possession of the goods under the lien that the trustee under the deed retained.

A trustee has for his protection a right to have costs and expenses properly incurred by him in the administration of the trust paid out of the trust property, and the amount of such costs and expenses constitutes a first charge upon that property. A Court of Equity will never take trust property out of the hands of a trustee without seeing that such costs and expenses are reimbursed to him, and that he is relieved from personal liability in respect of them; and, when the legal title to trust property is vested in the trustee, he has a right to resort to that property, without the assistance of the Court, for the purpose of indemnity against liabilities properly incurred by him in the administration of the trust.

118 The case was cited and followed by the High Court of Australia in Savage v Union Bank of Australia Ltd.[50] In this case, the appellant Savage was one of the executors of the estate of Thomas Whitelaw who had previously carried on the business of Thomas Whitelaw & Co. The respondent bank lent money to the firm and took security over property of the business. The issue before the court was whether the bank, when it sought to sequestrate the executor's estates, held any security which it was obliged to surrender.

119 The court held that the bank did hold security over the executor's lien of indemnity. Griffith CJ held that the bank was not entitled to execute against the property held on trust for the judgment against the executors. Nevertheless, Griffith CJ applied the decision in Jennings v Mather to hold that although the trust property was not property of the bankrupt, the right of indemnity that the bankrupt held over the trust assets would become available to the trustee in insolvency. The liability to the bank by the trustee was a liability incurred on behalf of the trust estate. Barton J and O'Connor JJ were of the same opinion.

120 In In re Frith; Newton v Rolfe,[51] the beneficiaries of the estate of H J Frith commenced an action against the trustees of the estate for administration. The trustees had been authorised under the will of H J Frith to carry on his business.

121 In taking account it was found that one of the executors was liable to the estate for some 900 pounds, but the other trustees showed clear accounts.

122 Shortly after judgment in the action, creditors of the testator's business (Wilkins & Denton) applied for and obtained an inquiry as to what debts and liabilities, properly incurred by the executors in carrying on the business since the testator's death, remained due to the applicants and other creditors of the defendants. The master issued a certificate of the amounts properly incurred by the executors. The creditors Wilkins & Denton then took out a summons asking for payment to themselves, and the other creditors of the business, of the debts respectively found due to them by the certificate out of the moneys standing to the credit of the action.

123 Kekewich J summarised the relevant principles as follows:[52]

The creditor has no right whatever against the estate, but he has a right to sue the trustee who has incurred the debt. If the trustee on his part has a clear account, and has a right of indemnity against the estate, the creditor is subrogated to that right, and for that purpose the creditor is allowed to intervene. He may sue the trustee, and he may claim the benefit of the indemnity to which the trustee is entitled out of the estate. If, on the other hand, the trustee is in default and has not got that right, then no doubt the creditor can get nothing, because he is relying on an equity which does not exist.

124 His Honour found that the fact that one of the trustees was in default, and his right or indemnity was thereby reduced, did not affect the entitlement of the other trustees who were not in default. The trustee not in default was entitled to be indemnified to the full extent of the liabilities that he had incurred on behalf of the estate.

125 In Re Richardson, Ex parte the Governors of St Thomas's Hospital[53] is an important case for present purposes, as it was relied on in Re Enhill and several of the subsequent cases discussed below. Re Richardson (No 2) addresses the nature of a trustee's right to indemnity.

126 The indemnity considered in Re Richardson (No 2) was that of a trustee's personal right of indemnity against a sole beneficiary who is sui juris. Such a beneficiary is bound in equity to indemnify his trustee for liabilities properly incurred for the benefit of the beneficiary, as was found in Hardoon v Belilios.[54]

127 There the Privy Council held that a bank that held shares on behalf of a sui juris beneficiary was entitled to recover, directly from the beneficiary, calls paid on shares it held on behalf of the beneficiary. Lord Lindley, who delivered judgment on behalf of the Board, held that the obligation was equitable and not legal. His Lordship said that '[w]hen a trustee seeks from the cestui que trust against liabilities arising from the mere fact of ownership, there is neither principle nor authority for saying that the trustee need prove any request from his cestui que trust to incur such liability.'[55]

128 In Re Richardson (No 2),[56] which I will shortly discuss, the indemnity entitled the trustee to make a claim against the beneficiary. The issue that the Court addressed was whether the payment made by the beneficiary was property of the trustee free from any equitable requirement that it be used to discharge the liability that gave rise to the indemnity or whether it was property of the trustee available to all his creditors. As mentioned, this is a different issue than is faced in this case, where the issue concerns the rights of the trustee to trust property. As discussed below, Official Assignee v Jarvis[57] concerned the application of moneys obtained by the owner of an equitable redemption. Re Doyle[58] involves another instance of the application of Hardoon v Belilios. Interestingly, even in the cases where the money in question is not trust money, the cases in some circumstances recognise an obligation to use the moneys recovered under the indemnity to discharge the obligation giving rise to the indemnity rather than the money being treated as property of the person available to meet all creditors. It is important to keep this distinction in mind when considering the cases.

129 In Re Richardson (No 2),[59] the trustee sought to be, and was, indemnified by the cestui que trust, for a debt incurred on property he held for the cestui que trust. The issue arose whether or not the moneys recovered from the cestui que trust were to be applied to meet the debt incurred by the trustee on behalf of the cestui que trust, or, whether in the event of the trustee going into bankruptcy, the moneys were available for the use of trustee's creditors generally.

130 The facts were as follows. St Thomas's Hospital leased two houses to Bundey and Wills. Wills assigned the leases to Harry Richardson, who held them on trust for his wife Fanny Richardson, who had purchased the beneficial interest in the leases. When the leases expired, Fanny remained in possession and received the rents and profits thereof as the owner of the beneficial interest. The Hospital took action against Harry for arrears of rent and for damages for breach of covenant and ultimately recovered judgment. In the meantime, Harry was adjudicated bankrupt. The Hospital lodged a proof of debt for 711 pounds that was not adjudicated upon.

131 The Hospital obtained leave to use the name of the trustee in bankruptcy to bring an action against Fanny on the indemnity, on the condition that they would apply to the Court in bankruptcy to determine whether the net sum recovered should be treated as assets amongst the creditors generally of Harry, or, should it be used to satisfy the liability owed by Harry to the Hospital.

132 The action was settled as against Fanny, on the terms that Fanny paid the sum of 520 pounds.

133 Phillimore J at first instance held that the moneys were divisible amongst Harry's creditors generally. On appeal, the Court of Appeal (Cozens-Hardy MR, Fletcher Moulton and Buckley LJJ) held that the money recovered from Fanny should be used to meet the claim of the Hospital only. The case was identified not as a case of a contractual right of indemnity, but merely one of an equitable right of a trustee to be indemnified by his cestui que trust.[60]

134 Fletcher Moulton LJ held that, as a general principle, an indemnity (arising where the trustee has incurred the debt but not paid it) 'can be used by the trustee only for the purpose of bringing about payment to the head creditor of the claim against which he is indemnified.'[61]

135 Buckley LJ said that in the case before him, the right of action (to enforce the indemnity) vested in the trustee in bankruptcy. What vested was a right to indemnity. Buckley LJ said that '[i]ndemnity requires that the party to be indemnified shall never be called upon to pay...'[62] Buckley LJ held that the party to be indemnified would not avoid being called upon to pay, if the sum paid by Fanny (the beneficiary of the trust) was not applied to the discharge of the debt in full.[63] Buckley LJ for brevity called the creditor (the Hospital) A; the lessee (Harry) B; and the person who was liable to indemnify (Fanny) C.

This is an obligation to indemnify. How can effect be given to an obligation to indemnify? Only in one of three ways. If B has paid the money to A he may get it back from C and may put it into his pocket. If B has not paid the money to A, but calls on C to pay the money to A, then if C pays the money to A, B is never out of pocket at all. In either of those cases B is indemnified. But lastly, if B has not paid the money to A but calls upon C to pay the money to him, B, in order that he may pay it to A, then B is not indemnified if the money is paid, not to A alone, but to A and others. According to the view put forward by the trustee in this case B is not indemnified.

137 Accordingly, in this case Buckley LJ held the money recovered from Fanny should be paid to the Hospital alone and not Harry's creditors generally.

138 Cozens-Hardy MR held likewise. His Lordship stated the relevant principles in general terms. His Lordship made no reference to Fanny wishing to protect her beneficial leasehold interest. Her position did not factor in his reasoning at all. His Lordship said:[64]

If I pay this amount to St Thomas's Hospital then I can come against the cestui que trust's estate and claim upon that, or, if I do not pay, then I will take proceedings to indemnify myself against the liability which I am under, giving effect to that indemnity in the only way in which effect can reasonably and properly be given to it by applying the money so recovered in the reduction or complete satisfaction, as the case may be, of the amount due to the hospital.

139 It is informative to note that Professor Scott and Professor Fratcher in Scott on Trusts[65] say that the decision in Re Richardson (No 2) 'seems clearly right.'

140 Subsequently, as discussed below, this decision was sought to be qualified in Re Doyle and in Re Enhill by saying that the payment needed to go to the Hospital alone to avoid Fanny's leasehold interest being lost. No mention appears to have been made of that factor by any of the Court of Appeal judges and it did not figure in their reasoning, nor was it necessary to support their reasoning. At the time of the payment by Fanny, her lease had expired.

141 Buckley and Kennedy LJJ and Scrutton J referred to Re Richardson (No 2) in In re Law Guarantee Trust and Accident Society Ltd (Liverpool Mortgage Insurance Company's Case),[66] where the Court addressed a contractual right of indemnity owed under a contract of insurance. Buckley LJ said that in Re Richardson (No 2), Fanny, who was bound to indemnify the trustee, 'was there concerned in seeing that the money which she paid went to the lessor so as to relieve the property of which she was beneficial owner from the consequences of non-payment of rent and damages for breach of covenant.'[67]

142 Kennedy LJ referred to Re Richardson (No 2), and distinguished it from the facts before the Court on the basis that the right of indemnity, in the case in issue, was based on an express contract of insurance. He did not doubt the ratio of Re Richardson (No 2), citing the Master of the Rolls where he said that 'to hold otherwise [that is that the money recovered from the cestui que trust must be applied to meet the trust liability], said the Master of the Rolls, would be to allow a trustee to make a profit out of his position as trustee.'[68]

143 Kennedy LJ distinguished Re Richardson (No 2) from the case before him saying that the insurer had no sort of interest in seeing how the money due from the insurer to the insured is applied by the insured.[69]

144 Thus, both Buckley and Kennedy LJJ considered that decision in Re Richardson (No 2), that the moneys recovered by the trustee from the beneficiary under the trustee's right of indemnity in equity should be applied to meet the trustee's debt incurred on behalf of the beneficiary, and should not be available to the trustee's creditors generally, should be treated as limited to the circumstances where the beneficiary had an interest in the payment being made to the creditor of the trustee. Kennedy LJ said that, in the case before him, the right to payment depended on an express contract for the payment in a certain amount of a sum of money. He said, '[t]he debenture-holders are not parties to these proceedings. There is no bond of connection between the company and the debenture-holders. The company has no sort of interest in seeing how the money due from the company to the society is applied by the society.'[70]

145 In Re Suco Gold, King CJ discussed this issue concerning the ambit of the decision in Re Richardson (No 2) as raised in Liverpool Mortgage and said that the limitation suggested in Re Liverpool Mortgage was 'difficult to understand, however, that this could be so because the lease had already expired when the landlord obtained judgment against the trustee and, of course, when the trustee recovered under the indemnity.'[71] His Honour said, '[t]he reasoning in the judgments was based upon the rights and duties of a trustee with respect to the trust property.'[72] King CJ also noted that the reasoning in Re Richardson (No 2) was also approved and followed in the New Zealand Court of Appeal in Official Assignee v Jarvis by Salmond J (with whom the other members of the Court concurred).[73]

146 As noted above and as discussed later, Re Enhill and Re Doyle both sought to distinguish Re Richardson (No 2) on the grounds that the situation was limited to the circumstances where the beneficiary had an interest in the moneys being applied to the liability giving rise to the indemnity. King CJ in Re Suco Gold did not accept that Re Richardson (No 2) recognised such a limitation. Such a limitation was not expressly referred to in Re Richardson (No 2) and was also not relevant as the lease that the trustee held for the benefit of Fanny had already expired when she paid the money to trustee.

147 The Hon Justice McPherson writing extra judicially said that the decision in Re Richardson (No 2) 'may require some qualification in a case where there are other trust liabilities also competing for payment.'[74] Otherwise, the learned author did not limit its application.

148 In Official Assignee v Jarvis, the New Zealand Court of Appeal considered a case where a purchaser of a property had agreed with the assignee to indemnify him for any liability owed on a mortgage of the property.[75] Salmond J, with whom Hosking and Stringer JJ agreed, distinguished between two classes of cases involving an indemnifying party. The first was where the indemnifying party had no interest in how the party indemnified may make of the money so received by him. In the second class the indemnifying part did have an interest in how the moneys received by him were applied. As to the second category, Salmond J said:[76]

... the indemnified party is under an equitable obligation to protect the interest, of the other party by expending the money received from him under the indemnity in satisfying the debt to which the indemnity relates. It would be unjust and unreasonable ... that a trustee should extract from a beneficiary the amount of liabilities incurred in the execution of the trust without expending the amount so received in the discharge of those liabilities. It is the duty, therefore, of the indemnified party in all cases of this class so to exercise his right of enforcing the indemnity that the money received by him gets into the right pocket. He must protect the interest of the indemnifying party as well as his own. He must use the money obtained by him for the purpose of the indemnity, and not divert it to a different purpose. He must do with it what the indemnifying party himself had undertaken to do - namely to discharge the debt against which the indemnity was given.

149 Salmond J went on to refer with approval to Re Richardson (No 2) as an example of the application of this principle.

150 The facts in Official Assignee v Jarvis did not involve a trustee using trust assets to meet a debt incurred by the trustee in carrying on business of the trust. Rather, the case dealt with the right of indemnity that a vendor of general law land had against a purchaser of the land where the land sold was subject to a mortgage in favour of a third party.

151 The vendor had gone bankrupt and the Official Assignee sought to recover from the purchaser the outstanding amount of the mortgage. The Court held that the Official Assignee of the vendor could recover against the purchaser the moneys owed by the vendor to the mortgagee.

152 The issue pertinent to the case before me is the decision by the Court that the moneys payable by the purchaser to the Official Assignee were not available to the vendor's creditors generally (the vendor being bankrupt), but that the moneys were to be applied to discharge the liability that gave rise to the obligation of indemnity owed by the purchaser to the vendor, so as to free the property from the mortgage.

153 The Court held that the purchasers had an interest in ensuring that the mortgage was discharged. The Court likened the facts to that in Hardon v Belilios, where the unregistered purchaser of shares was bound to indemnify the registered seller against calls and was thus interested in seeing the application of the moneys to be used to meet the calls.

154 Salmond J said that he did not consider that Re Richardson (No 2) was limited to cases in which the indemnified party was a trustee. He said that, '[i]t seems to extend, at the least, to all cases in which the indemnifying party has an interest in the discharge of the liability against which he has indemnified the other party.'[77]

155 Salmond J did not address the fact that in Re Richardson (No 2) the Court relied on the nature of an indemnity in coming to the result that it did, and did not rely on any interest being sought to be protected by Fanny, as the lease to Fanny had expired.

156 Accordingly, the case provides little assistance in resolving the issues arising in the case before me.

157 The question whether creditors had an interest in the application of the trustee's right of indemnity was examined in Re Doyle[78] by Clyne J, the Federal Judge in Bankruptcy. The case differs from the issue before me, as it concerns the application of moneys payable to a trustee by a beneficiary and not a right of indemnity out of trust assets.

158 In that matter, Martha Doyle held the licence of the King's Cross Hotel in Darlinghurst. Martha Doyle went overseas and during her absence R E Doyle carried on the Kings Cross Hotel on her behalf and in doing so R E Doyle incurred liabilities to beer suppliers. On 10 October 1939, Martha Doyle sold to Johnson, the licence to the Kings Cross Hotel. In November 1939, R E Doyle entered into a contract with Tooth & Co for the purchase of the lease of another hotel. R E Doyle did not complete the contract. The estate of R E Doyle was sequestrated on 13 January 1940.

159 It was found that Martha Doyle was bound to indemnify R E Doyle's trustee in bankruptcy for all the liabilities incurred by R E Doyle in carrying on the business of the King's Cross Hotel during Martha Doyle's trip overseas.

160 It was held by Clyne J that the bankrupt was entitled to an indemnity from Martha Doyle. The issue before the Court was whether the trustee in bankruptcy of the estate of R E Doyle was entitled to share the moneys paid by Martha Doyle, under the indemnity to R E Doyle, with all the bankrupt's creditors, or whether the creditors to whom the bankrupt incurred liabilities in carrying on the business of the King's Cross Hotel, such as the beer suppliers, were alone entitled to receive those moneys.

161 Clyne J, after referring to Re Richardson (No 2) and Official Assignee v Jarvis,[79] summarised the position as follows:[80]

The cestui que trust is under a duty to indemnify the trustee against liabilities properly incurred by him in the execution of the trust, and, during the existence of the trust relationship, is entitled to require that the moneys paid to the trustees, pursuant to that duty, should be applied towards the discharge of the liabilities so incurred in order to protect or preserve intact the estate of the beneficial owner and the trustee is under a corresponding duty to apply such moneys when received by him in or towards the discharge of such liabilities so as to protect or preserve intact this estate.

162 Clyne J held that Martha Doyle would have been so concerned and the trustee in bankruptcy would have been so bound to apply the moneys to the creditors whose debt arose through the conduct by the bankrupt of the King's Cross Hotel. Clyne J held, however, that when Martha Doyle absolutely assigned her interest in the hotel to Johnson, she had no beneficial interest to protect or preserve and could not be concerned or interested in the application of the moneys which she paid to the trustee in bankruptcy.

163 Clyne J therefore held that the moneys formed part of the general assets of the bankrupt and must be distributed to all creditors.

164 The decision in Re Doyle does not sit easily with Re Richardson (No 2). As discussed above, in my opinion Re Richardson (No 2) is not distinguishable from Re Doyle on the ground that the beneficiary of the trust now no longer has an interest in the hotel. The ratio of Re Richardson (No 2) was that the nature of an indemnity required that the trustee no longer be called on to pay the debt giving rise to the indemnity. This will not be achieved if the moneys recovered by the trustee under the indemnity are not so used to meet the liability that gave rise to the indemnity. In Re Doyle, this should have required the bankrupt being no longer liable to the creditors for debts incurred when he ran the King's Cross Hotel on behalf of Martha Doyle.

165 The High Court addressed the nature of a trustee's indemnity in Vacuum Oil Co Pty Ltd v Wiltshire,[81] where Dixon J said:[82]

The liabilities the executor incurs in carrying on the business are his personal debts and give the creditors to whom he has incurred them no direct right of recourse to the assets of the estate. But, if the executor has acted under some authority binding upon those who otherwise would be entitled to the assets, their claims are subject to his right to be indemnified out of the assets in respect of liabilities he has incurred in the proper performance of his duties or exercise of his powers. He has a lien over the assets which takes priority over the rights in or in reference to the assets of beneficiaries or others who stand in that situation. But the claims of creditors of the deceased, whose rights are, of course, independent of his will, cannot be postponed so as to rank behind this lien, except by their own act or conduct. Although the executor's creditors to whom he has become indebted in the course of carrying on the business have no direct claim upon the assets, because they deal with him on the footing of his personal liability, yet in equity they may be subrogated to his right of indemnity or lien. The principle is stated in a few words by Turner L.J. in Ex parte Edmonds:[83] ¾ "The executor or trustee directed to carry on the business having the right to resort for his indemnity to the assets directed to be employed in carrying it on, the creditors of the trade are entitled to the benefit of that right, and thus become creditors of the fund to which the executor or trustee has a right to resort."

166 Dixon J confirmed that the creditors of the trustee are entitled to the benefit of the trustee's right of indemnity and 'thus become creditors of the fund' to which the trustee had a right to resort. This is significant as it is the point made by King CJ in Re Suco Gold, which I will come to shortly.

167 In 1979, R P Meagher QC wrote a paper entitled, 'Insolvency of Trustees' that dealt, inter alia, with the insolvency of a corporate trading trustee.[84] Mr Meagher said that a trustee's right to indemnify himself out of the trust assets for all his liabilities properly incurred by him was a purely equitable not a common law right. He noted that some writers would further subdivide this right to indemnify into (a) a right of reimbursement in respect of liabilities of the trust already personally discharged by the trustee, and (b) a right of exoneration in respect of trust liabilities already incurred but not yet discharged, referring to Scott on Trusts.[85]

168 As noted previously, the company in this case did not have moneys of its own and thus was exercising the right of exoneration.

169 The High Court addressed the nature of a trustee's rights in Octavo Investments Pty Ltd v Knight[86] and endorsed the observations of Dixon J in Vacuum Oil. The Court held that the principles naturally led to the conclusion that the beneficial interest which, by subrogation, the creditors whose claims arise from the carrying on of the business have in the assets held by a bankrupt trustee form part of the property of the bankrupt divisible amongst his creditors.

170 The facts in Octavo were as follows. Coastline was incorporated with five shares. The shares were each held by each of its five directors. The five directors were also directors of Octavo. Coastline was appointed the trust of a business as a distributor of frozen foods. Unfortunately it traded unprofitably and was wound up. During the six months prior to winding up, Coastline had made a number of payments to Octavo.

171 The liquidators of Coastline instituted proceedings seeking to have the payments to Octavo declared void as preferences pursuant so s 293 of the Companies Act 1961-1975 (Qld) and s 122 of the Bankruptcy Act 1966 (Cth).

172 The primary judge concluded that the payments in question gave Octavo a preference or an advantage over other creditors of Coastline and that, throughout the period in which the payments were made, Coastline was unable to meets its debts as they became due from its own money.

173 Octavo appealed on the ground that if Coastline had been an individual trustee the payments in question would not have been void in his bankruptcy. Octavo argued that all the property in the hands of Coastline was trust property. Trust property does not come within the description of 'property divisible amongst the creditors of the bankrupt' within the meaning of s 116 of the Bankruptcy Act 1966 (Cth).

174 Octavo argued that the legal estate in the trust property did not vest in the trustee in bankruptcy upon bankruptcy of an individual trustee.

175 The Court held that although Coastline held trust property (the trustee's right of indemnity in respect of liabilities incurred on behalf of the trust), the trust property would pass to the trustee in bankruptcy of the trustee for the benefit of creditors of the trust trading operation should the trustee become bankrupt.

176 The Court addressed the general principles concerning the bankruptcy of a trading trustee as follows.[87]

We do not understand the general principles concerning the bankruptcy of a trading trustee to be in dispute. It is common ground that a trustee who in discharge of this trust enters into business transactions is personally liable for any debts that are incurred in the course of those transactions: Vacuum Oil Co. Pty. Ltd. v. Wiltshire. However, he is entitled to be indemnified against those liabilities from the trust assets held by him and for the purpose of enforcing the indemnity the trustee possesses a charge or right of lien over those assets: Vacuum Oil Co. Pty. Ltd. v. Wiltshire. The charge is not capable of differential application to certain only of such assets. It applies to the whole range of trust assets in the trustee's possession except for those assets, if any, which under the terms of the trust deed the trustee is not authorized to use for the purposes of carrying on the business: Dowse v. Gorton.

In such a case there are then two classes of persons having a beneficial interest in the trust assets: first, the cestuis que trust, those for whose benefit the business was being carried on; and secondly, the trustee in respect of his right to be indemnified out of the trust assets against personal liabilities incurred in the performance of the trust. The latter interest will be preferred to the former, so that the cestuis que trust are not entitled to call for a distribution of trust assets which are subject to a charge in favour of the trustee until the charge has been satisfied: Vacuum Oil Co. Pty. Ltd. v. Wiltshire.

The creditors of the trustee have limited rights with respect to the trust assets. The assets may not be taken in execution (Savage v. Union bank of Australia Ltd; In re Morgan; Pillgrem v. Pillgrem) but in the event of the trustee's bankruptcy the creditors will be subrogated to the beneficial interest enjoyed by the trustee: Vacuum Oil Co. Pty. Ltd. v. Wiltshire; Ex parte Garland.

These principles lead naturally to the conclusion that the beneficial interests which, by subrogation, the creditors whose claims arise from the carrying on of the business have in the assets held by a bankrupt trustee form part of the property of the bankrupt divisible amongst his creditors_: Savage v. Union bank of Australia_; Jennings v. Mather; Governors of St Thomas's Hospital v. Richardson. The definitions of both "property" and "property of the bankrupt" in s. 5 of the Bankruptcy Act are apt to include such a beneficial interest.

Property which is an asset of a trading estate carried on by a trustee is properly described as trust property: Dowse v. Gorton; Jennings v. Mather. However, as we have already indicated, that does not mean that the cestuis que trust are necessarily entitled to call for the delivery of the property. If the trustee has incurred liabilities in the performance of the trust then he is entitled to be indemnified against those liabilities out of the trust property and for that purpose he is entitled to retain possession of the property as against the beneficiaries. The trustee's interest in the trust property amounts to a proprietary interest, and is sufficient to render the bald description of the property as "trust property" inadequate. It is no longer property held solely in the interests of the beneficiaries of the trust and the trustee's interest in that property will pass to the trustee in bankruptcy for the benefit of the creditors of the trust trading operation should the trustee become bankrupt. The fact that the trust property itself cannot be taken in execution by the creditors of the trustee is not to the point. Those creditors are nevertheless subrogated to the rights of the trustee in relation to that property, and in the event of the trustee becoming bankrupt, it is those rights which are to be realized in their favour.

178 The Court recognised the right of subrogation of the creditors of the trustee saying 'the creditors of a trust business may have resort to the assets of the trust to the extent of the liabilities incurred by the trustee.'[89]

179 The receivers, relying on Octavo, submit that the right of indemnity is personal property of the trustee.[90] In my view Octavo did not address that issue. The High Court did not address the issue of whether the right of indemnity was property available to non-trust creditors of the trustee. The only creditors Coastline had were trust creditors. This is the view of Needham J, discussed below.

180 In 1981, Professor H A J Ford, in an article entitled 'Trading Trusts and Creditors' Rights,'[91] categorised the right of indemnity as a right of recoupment where the trustee had paid the debt incurred on behalf of the trust and the right of exoneration where he used the trust property to pay the debt. Professor Ford referred to the trustee's equitable charge or lien on the trust property. He said that entitled the trustee to retain the trust property until the right to indemnity was satisfied, and if need be, to sell it. He said that a trustee's right of indemnity has been described as a right of property in assets of the trust, citing Octavo. He says 'that description is acceptable where the trustee had paid the debt and he has a right of recoupment but where the right is one of exoneration there can be cases where the trustee's power to apply trust property in payment of trust debts is a fiduciary power to be exercised in the interests of the beneficiary.'[92]

181 Professor Ford said that the authorities held that a creditor's right against the trust property is derivative: he stands in the shoes of the trustee. Professor Ford said that originally the trust creditor would be required to seek a decree for administration, but now he could proceed by originating summons.

182 In Re Byrne Australia Pty Ltd and the Companies Act,[93] Needham J held that the assets of a company being wound up in insolvency, that had acted solely as the trustee of discretionary trust, should be used exclusively in the payment of trust creditors and that the assets were not available to pay the costs of the liquidator, unless the liquidator could make a claim as a trust creditor.

183 Needham J recognised that the High Court in Octavo had set out what the Court described as 'general principles concerning the bankruptcy of a trading trustee.'[94] Needham J said the decision was important for not only what it decided but also for what it did not. Needham J said that Octavo was not authority for the proposition that where a trustee company carries on business with a trust fund, incurs liabilities and then is wound up, the whole of the trust fund is property divisible amongst all the company's creditors, whether trust creditors or not.

184 Needham J cited Official Assignee v Jarvis,[95] where Salmond J referred to two classes of indemnity: one where the indemnifying party has an interest in the extinction of the liability to which the indemnity relates; and the other, where there is no such interest. As an example of the first class, Salmond J cited the case of a beneficiary 'bound to indemnify his trustee against liabilities incurred in the execution of the trust.'[96] Salmond J said that in that case, the indemnifier 'is concerned in the discharge of those liabilities by the trustee so as to free the trust property from any charge thereon.'[97]

185 Salmond J said that in that case the money the subject of the indemnity must be used to discharge the liability which caused the emergence of the indemnity. Needham J referred to the fact that Salmond J cited Re Richardson (No 2) and said that in the case before him there was no personal indemnifier as the trust was a discretionary trust, but 'he thought the same principles would apply and that the trustee would be bound to use in the discharge of trust liabilities that portion of the trust fund which was the subject of the indemnity.'[98]

186 Needham J left open the question whether the liquidator could claim to be a trust creditor. His Honour also left open whether one trust creditor should have priority over another by reason of s 292(1)(b) of the Companies Act 1961 (NSW).

187 In Re Byrne Australia Pty Ltd and the Companies Act (No 2),[99] the matter of the liquidator's costs and remuneration came back before Needham J. The liquidator of a trustee company applied to have his costs of the winding up paid out of the trust assets. Needham J held that the liquidator's remuneration must come out of the assets of the company and that the company had no assets, but it had a right of indemnity against the assets to meet its obligation to pay creditors of the trust business. Needham J held that the liquidator was not a creditor of the trust business. His Honour said that the liquidator was a functionary, appointed by the members. His Honour said that the liquidator had a statutory right to remuneration and had priority over the unsecured debts, referring to s 292(1) of the Companies Act 1961 (NSW), but that did not extend to accessing the trust assets.

188 In Re Enhill, the Full Court of this Court held that the trustee's right of indemnity and lien was an asset available for creditors of the trustee generally and not just for trust creditors. In Re Enhill, a company that conducted a business solely as trustee went into liquidation. The liquidator, relying on s 292(1)(a) of the Companies Act 1961 (Vic), sought an order authorising him to apply the trust assets in payment of his own costs and expenses in priority to any other claims. Section 292(1)(a) provided that subject to the provisions of the Act, in a winding up, the costs and expenses of the winding up and the remuneration of the liquidator should be paid in priority to all other unsecured debts.

189 The Court held that the trustee's right of indemnity and supporting lien are property under the control of the liquidator and is not a right held by the trustee as trustee, or subject to any rights of creditors where the liability had been incurred on behalf of the trust. Accordingly, s 292(2)(a) applied to the distribution of assets.

190 The matter was not heard at first instance. Rather, the case was referred to the Full Court by McInerney J, with the consent of the parties, under s 44 of the Supreme Court Act 1958 (Vic). I will come to the decision of the Full Court and the judgment of Lush J shortly. First I will set out the submissions of the parties, as explained by Lush J.

191 Lush J said that Dr Sundberg and Mr Hayes for the applicant liquidator were at first disposed to concede that the only creditors who could benefit from the proceeds in question were the trust creditors, but contended that Needham J in Re Byrne was wrong in excluding the liquidator for that reason. Mr Finkelstein for the Corporate Affairs Commission did not join in the early concession made by counsel for the liquidator, that the proceeds of the right of indemnity or lien were available for payment of the debts of the trust creditors but no others. He argued, relying upon Re Richardson (No 2)[100] and Re Raybould,[101] that once the liquidator had got in the proceeds of the lien, or charge, those proceeds were available for all purposes of s 292. Mr Finkelstein also relied on the principle in In re Universal Distributing Co Ltd (in liq).[102]

192 Mrs Moshinsky for the petitioning creditor pressed the argument that the proceeds of the indemnity or lien were available only for the trust creditors, contending that Re Byrne (No 1) was correctly decided. Mrs Moshinsky argued that when the trust creditors and the ordinary creditors of the bankrupt trustee were in competition, the trust creditors' right of subrogation to the trustee's rights in effect gave them the right of a secured creditor in relation to the trust assets. It will be noted that this is the view now favoured by Brereton J in Re Independent. Mrs Moshinsky argued that the trustee in bankruptcy or liquidator of such a trustee must use the proceeds to exonerate the trustee from liability to the trust creditors. The consequence was that s 292(1)(a) did not apply to the proceeds because of the existence of the security and because the contrary view involves allowing the use of trust assets to satisfy the trustee's personal debts based on alleged rights of a liquidator arising from sources other than the Companies Act 1961 (Vic).[103]

193 I mention these submissions in order to establish that in substance the very contentions put by Brereton J of the New South Wales Supreme Court in Re Independent were addressed in Re Enhill by the Full Court of this Court.

194 In Re Enhill, Young CJ said that the High Court in Octavo recognised that 'the trustee's right to indemnity gave him a proprietary interest which on his bankruptcy passed to his trustee in bankruptcy or where the trustee was a company came under the control of the liquidator.'[104] His Honour said that 'no limitation was expressed upon the purposes for which the trustee in bankruptcy or the liquidator might apply the proceeds of the right.'[105] His Honour referred to Jennings v Mather, where it was held that a trustee's right of indemnity over the trust assets passed to the trustee's trustee in bankruptcy. Young CJ said that:[106]

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.

195 The Chief Justice did not refer to Re Richardson (No 2), although according to Lush J, the case was cited by Mr Finkelstein of counsel in argument. As mentioned above, the ratio of Re Richardson (No 2) was relevant to the issue of whether the trustee's right of indemnity was personal property.

196 Lush J referred to the article by Professor Ford, referred to earlier, where Professor Ford suggested that the right of indemnity is not a property right but a power. Lush J said that the right was designed to be used for the trustee's own benefit and is properly classed as a chose in action and was therefore as property of the trustee.[107] Lush J said that:[108]

Fifthly, a trust creditor, being unable to levy execution on the trust property, may claim to be subrogated to the trustee's right of indemnity or lien to the extent of his debt. Plainly, if the trustee's right has been extinguished by satisfaction, that is if the trustee himself had exercised it, it cannot be exercised a second time by the creditor. Accordingly, if the trustee, having exercised his right of lien, failed to pay the proceeds to the creditor, the creditor would be left unpaid and with no available right of subrogation.

197 In support of this proposition, his Honour referred[109] to Re Johnson; Shearman v Robinson,[110] Re Evans,[111] Re Blundell,[112] and Vacuum Oil.[113]

198 Lush J said that the trustee's right of indemnity or lien is part of his 'personal property': 'It exists to enable him to recoup himself for, or to provide for, the debts which he must bear personally.'[114] Lush J rejected the propositions that the trustee in effect held his right of lien on trust for creditors. He also rejected the suggestion that if the proceeds were available for the trustee's creditors generally, the trustee would be deriving an unauthorised personal advantage from the trust. Lush J said that the right of lien was a beneficial right of the trustee. Lush J said:[115]

Further, if one assumes a case in which the trustee has paid the trust creditors out of his "personal property" and is thus entitled to an indemnity, his right must be a right which, by equitable execution or bankruptcy, could be made available to his personal creditors, but it would be absurd to suggest that the trustee was in this way obtaining an unauthorized benefit from his office.

199 Lush J referred to the reasoning in Re Richardson (No 2), and to the decision of Salmond J in Official Assignee v Jarvis. His Honour distinguished Re Richardson (No 2) on the ground that the decision only imposed a qualification on the general thesis which he advanced, that the trustee's right of indemnity was available to all creditors of the trustee. His Honour said that if the trustee in bankruptcy had not applied the moneys received as indemnity to the payment of rent, the lease would have been subject to forfeiture, and the trust property lost. As indicated above, in my opinion, that factor was not relied on by any of the judges of appeal in Re Richardson (No 2). Further, the observation overlooks the fact that the lease had expired before the payment was made.

200 Lush J said that the decision of Salmond J in Official Assignee v Jarvis should be read in the light of the facts and decision and not to apply to unsecured creditors generally. He said that:[116]

This is particularly true of the observation at ([1923] NZLR) p. 1018, that "a beneficiary bound to indemnify his trustee against liabilities incurred in the execution of the trust is concerned in the discharge of those liabilities by the trustee so as to free the trust property from any charge thereon." The statement will, in the light of the facts and decision, be seen to mean "if there is any such charge", and not to imply that the existence of a debt creates a charge."

201 It was submitted before me, on behalf of CHH, that the comments made in Re Enhill concerning the right of exoneration being available to creditors of the trust generally, is merely obiter dicta, as the case could have been decided by reference to the principles from Universal Distributors. Whilst I agree that the point could have been decided on the principles from Universal Distributors, as Lush J commented,[117] that was not how the decision was reached and it would be unsafe to resolve the present dispute on the premise that what was said in Re Enhill was obiter dicta.

202 In Grime Carter & Co Pty Ltd v Whytes Furniture (Dubbo) Pty Ltd,[118] McLelland J dealt with an application concerning a company that acted solely as a trustee that went into liquidation. McLelland J held that the trustee was entitled to retain control of the trust assets for the purpose of exercising its right to be indemnified out of the trust assets for the trust liabilities incurred by it. He also held that the costs and expenses of the winding up, including the remuneration of the liquidators, should be paid out of the trust assets, or the proceeds of their realisation, in priority to the trust creditors. His Honour followed the decision in Re Enhill in preference to the decision of Needham J in Re Byrne (No 1).

203 McClelland J said, '[a]lthough the decision in Re Enhill is not technically binding on me, there are powerful reasons why, as the decision of an ultimate State appellate court it should now be followed in New South Wales...'[119] McClelland J said that Re Enhill was the decision of a state appellate court, and dealt with an aspect of the law of trusts closely related to the operation of the uniform companies code. He said that consistency in approach throughout the Commonwealth was highly desirable and, accordingly, he proposed to follow Re Enhill in preference to Re Byrne.

204 His Honour said that the decisions in Re Byrne were inconsistent with a decision of the Federal Court of Bankruptcy in Re Doyle,[120] which was not referred to by Needham J and was supported by Lord Romilly MR in Re The Exhall Coal Company (Ltd).[121]

205 The decision in Re Enhill was not followed by the Full Court of the Supreme Court of South Australia in Re Suco Gold. There, a company that acted as trustee of two unit trusts was wound up on the grounds of insolvency. The liquidator sought directions as to whether the costs and expenses of the winding up could be paid out of the trust assets. The liquidator relied on Re Enhill in to argue that the trustee's right of indemnity was an asset of the trustee available for all creditors including his costs and expenses.

206 King CJ disagreed and distinguished between two situations. Firstly, where the trustee had incurred a liability on behalf of the trust and had a right to indemnify itself with assets from the trust to meet that liability. Secondly, the situation where the trustee, from its own moneys, had met the liability and then sought to indemnify itself for the expenditure it had made from its own assets. In the case before the Court (as in the matter before me) the trustee had no moneys of its own, and merely had a right to indemnify itself for debts it had incurred on behalf of the trust, rather than for debts it had paid with its own money on behalf of the trust.

207 King CJ held that a trustee has no legal right to use or apply the trust property other than for the authorised purposes of the trust. Accordingly, the trustee could only use trust money to meet liabilities incurred on behalf of the trust. The trustee was not entitled to use trust money to pay private debts incurred by it. King CJ cited Re Richardson (No 2) and Official Assignee v Jarvis. King CJ disagreed with the conclusion in Re Enhill, that the trustee's right of indemnity (where it had not used its own moneys to discharge the trustee liability) constituted property of the company available for all creditors. King CJ said:[122]

I am bound to say that, with the greatest respect to those who have found this argument persuasive, it seems to me to be in conflict with fundamental principles of the law of trusts. I appreciate that there is some conflict of judicial opinion as to the legal position as to the enforceability of an indemnity before payment of the debt where the indemnity arises under contract: In re Richardson[123] per Cozens Hardy MR at 709, per Fletcher Moulton LJ at 712; In re Law Guarantee Trust and Accident Society Ltd; Liverpool Mortgage Insurance Company's case[124] per Scrutton J at 651 and cases there cited; Official Assignee v Jarvis,[125] per Salmond J at 1021. A trustee, however, has no legal right to use or apply the trust property other than for the authorized purposes of the trust. In particular he has no legal right to apply the trust property for his own benefit or for the benefit of third parties, Keech v Sandford .[126] 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.

208 King CJ also found support for the conclusion that the trust property is only available to meet trust creditors, where the trust seeks to be indemnified rather than reimbursed or recouped, in the proposition that the unpaid trust creditors have the right to be subrogated to the rights of the trustee. The Chief Justice said:[127]

I agree with Needham J who said in Re Byrne Australia Pty Ltd that Octavo's case "is not authority for the proposition that, where a trustee company carries on business with a trust fund and incurs liabilities and then is wound up, the whole of the trust fund is property divisible amongst all the company's creditors, whether trust creditors or not". In my opinion, the right of indemnity can only produce proceeds divisible among the general body of creditors if the insolvent trustee company has paid the trust creditors and is entitled to recoup itself out of the trust property.

This view of the implications of the decision in Octavo's case is confirmed by the emphasis which was placed in that case upon the right of the unpaid trust creditors to be subrogated, upon the bankruptcy or liquidation of the trustee, to the trustee's right of indemnity. On bankruptcy or liquidation, the unpaid trust creditors are entitled to stand in the shoes of the trustee and to obtain payment from the trust property. Such a right is, in my view, inconsistent with the notion that the trust property is, to the extent of the trust liabilities, property of the bankrupt divisible among the general body of creditors. The existence of the right of subrogation must mean that the trust property, to the extent of the trustee's right of indemnity, in respect of the unpaid trust liabilities, must be applied in payment of the trust creditors. Indeed this was made explicit in the joint judgment in Octavo's case where the following passage appears at p. 91:

Those creditors are nevertheless subrogated to the rights of the trustee in relation to that property and in the event of the trustee becoming bankrupt, it is those rights which are to be realized in their favour." (Italics mine).

209 As for the costs and expenses of the liquidator in the winding up, I have discussed this above at 88 and following.

210 In Re ADM Franchise Pty Ltd,[128] McLelland J considered an application for directions as to the distribution of the assets of an insolvent trustee. His Honour said that, without any elaboration, he preferred the reasoning employed in Re Suco Gold to that employed in Re Enhill. Referring to the 'same practical result' that would be achieved by employing the reasoning of either cases, his Honour said that Re Suco Gold 'appear[s] to provide a more acceptable means of reaching this common conclusion than those [judgments] in Re Enhill Pty Ltd.'[129]

211 Noting the inconsistency with his earlier observations in Grimes v Whytes, which was decided after Re Enhill and before Re Suco Gold, McClelland J said:[130]

I felt constrained by the decision of the Full Supreme Court of Victoria in Re Enhill Pty Ltd and the ideal of consistency in approach in this area throughout the Commonwealth, to proceed on the basis that a trustee's entitlement to indemnity out of trust assets was not confined to the traditional rights conveniently described as the right of reimbursement and the right of exoneration, but (in the absence of any interest of a beneficiary in having liabilities to trust creditors discharged) extended to include a third right, viz a right to appropriate to the general estate of the trustee, trust funds up to the amount of trust liabilities which remain unsatisfied by the trustee and for which the trustee remains personally liable. The decision of the Full Supreme Court of South Australia in Re Suco Gold Pty Ltd (in liq), in which the existence of any such third right was denied, has removed that constraint ...

212 In Re RWG Management Ltd v Commissioner for Corporate Affairs,[131] Brooking J considered the case of a stockbroker conducting its business as a trading trust. In passing, Brooking J noted the different approach taken, in Victoria (Re Enhill) to that taken in New South Wales (Re Byrne (No 1) and Re Byrne (No 2)) and in South Australia (Re Suco Gold), to the availability of the trustee's indemnity to meet liabilities owed to creditors generally as opposed to those creditors whose debts gave rise to the lien. Brooking J did not express any view of which approach should be preferred.

213 In an article entitled 'The Insolvent Trust', B H McPherson J[132] opined that where, as held in Re Suco Gold, trust assets may only be used by the trustee to meet liabilities incurred for the benefit of the trust estate, the assets are not beneficially owned by the trustee and the statutory priorities which apply to the assets of the company do not apply to the right of indemnity.[133]

214 His Honour agreed with Re Suco Gold that a trustee using the trust assets in payment of liabilities incurred, other than in the course of and for the purpose of the trustee trading, would constitute a breach of trust.[134]

215 The conflict between Re Enhill and Re Suco Gold was referred to in Ramsay v National Australia Bank Ltd.[135] This was an appeal in this Court from Marks J, who had held that the bank had not received a preference under s 451(1) of the Companies (Victoria) Code, or alternatively there was not a void disposition within the meaning of s 368(1) of the Code. The relevant facts were as follows. A company (Distributors) was in financial difficulties. The controller, Mr Holloway, established another company (Industries). Mr Holloway had Distributors sell its business to Industries for $1 under an agreement that Industries would indemnify Distributors for its liabilities. One of its liabilities was a debt of some $50,000 to NAB.

216 In essence, Distributors went into liquidation. Within the six-month relation-back period, NAB had lent the new company (Industries) moneys which Industries used to pay out the bank debt owed by Distributors to NAB. This enabled the bank to switch its liability to the new company Industries.

217 The liquidators of Distributors sought a declaration that the transaction, whereby Industries paid the debt owed by Distributors to the bank, was a payment 'made by' Distributors within the meaning of s 451(1) of the Code (that is, a preferential payment).

218 The case concerned a contractual right of indemnity. It did not involve any consideration of a trustee's right of indemnity out of trust assets. The Full Court (in a joint judgment of Murphy, Southwell and Phillips JJ), considered, amongst other cases, Official Assignee v Jarvis, and considered whether under a simple contractual right of indemnity there was any obligation on the indemnified party to apply moneys received under the indemnity in meeting the liability giving rise to the right to be indemnified.

219 The Court briefly addressed and rejected the relevance of Re Suco Gold and Re Enhill to the issues they had to resolve. Their Honours found it unnecessary to consider the issue between the two cases, however, it was noted by the Court that:[136]

In any event, the decision in Re Enhill Pty Ltd appears to us to be discretely founded on the principle that a trustee's right of indemnity is itself based on the right that a trustee has to "exonerate his personal estate", (at 564) out of the trust assets. We do not find it necessary to comment further upon the reasons in Re Enhill , which have been said to "look distinctly fragile" (Finn - Essays in Equity, (1977) p. 250).

220 As a contractual right they held that the indemnity did constitute property of the company in the hands of the company and in the hands of the liquidator.

221 As it was, the Court held that the payment by Industries to the bank did not constitute a disposition by Distributors within the meaning of s 368(1), nor was it caught by s 451 as an unfair preference.

222 In my opinion, the Court's judgment does not take the resolution of the conflict between Re Enhill and Re Suco Gold any further. The Commonwealth, however, gives some significance to this case in support of their argument that Re Enhill is binding on me in this case, when they rely on Collie v Nolan, discussed below.

223 J D Merralls QC, in a paper entitled 'Unsecured Borrowings by Trustees of Commercial Trusts',[137] commenting on Re Enhill, Re Suco Gold and Re ADM, states:[138]

... it was held that the trustee's right of exoneration could be exercised only for the purpose of paying the specific debt. The latter view is consistent either with the creditor's right of subrogation being attached to the trustee's right or with the right of exoneration being in the nature of a power for a purpose with a trust for the creditor arising when it is exercised. Upon this point Re Enhill Pty Ltd has few supporters: the present Chief Justice of the High Court[139] has written extra judicially that is reasons 'look distinctly fragile.'[140]

224 In Re Matheson; Ex parte Worrell v Matheson,[141] Spender J of the Federal Court of Australia considered the conflict between Re Enhill and Re Suco Gold, agreeing with King CJ in Re Suco Gold and adding that 'the mere act of appropriation of trust property by the trustee pursuant to the trustee's right to indemnity from the trust does not strip from such funds their nature as funds impressed with trust obligations.'[142]

225 In Young v Murphy,[143] the Appeal Division of the Supreme Court of Victoria (Brooking, JD Phillips and Batt JJ) considered an appeal concerning the standing of a new trustee to sue the former trustee, the directors of the former trustee, and other parties associated with the former trustee, for claims arising out of the management of the trust.

226 The former trustee was Burns Philp Trustee Co Ltd known as BPTC. The new trustee sought to make claims against the directors of BPTC that included claims that the directors breached their duties owed to BPTC as directors through their actions or inactions in relation to the trust property. Phillips J, with whom Brooking J and Batt J agreed, held that the claims by BPTC against its directors for breach of their duties to BPTC cannot have been shown to be trust property and there was no basis to conclude that it was. Phillips J held that BPTC's right over claims against its own directors was property available to the creditors generally in the winding up of BPTC. Phillips J said that this right was consistent with the decision of this Court in Re Enhill. In so saying, his Honour did not rely on the reasoning in Re Enhill.

227 His Honour referred to the New South Wales decisions of Re Byrne (No 1) and Re Byrne (No 2) and said that in Re Enhill:[144]

This court declined to follow those two decisions of Needham J, holding instead that the trustee's right of indemnity out of the trust assets was property available to the liquidator for division among the trustee's creditors generally in the winding up of the trustee. In substance, this court was of the view that the special considerations affecting a trustee's right of indemnity out of the assets were not such as to confine the availability of that right, considered as an item of property in the winding up, to creditors of the trust. Of course, in the present case there are no such special considerations, where BPTC, if it is to be considered as having some right of ``indemnity'' from its directors, is relying upon duties which those directors owed generally to their company; nor is that ``indemnity'' to come out of the assets of the trust. In those circumstances, the difference of opinion between the Supreme Court of New South Wales and this court on the question of the trustee's right of indemnity out of trust assets when the trustee is being wound up (as to which see also Re Suco Gold Pty Ltd (1983) 33 SASR 99; 7 ACLR 873; Kemtron Industries Pty Ltd v CSD (Qld) [1984] 1 Qd R 576 and Ramsay v National Australia Bank Ltd [1989] VicRp 7; [1989] VR 59; (1988) 13 ACLR 732) is not a difference of opinion which is at all relevant.

228 Thus, the Court did not express any view as to whether or not Re Enhill should be preferred to Re Suco Gold.

229 The new trustee sought special leave to appeal from the decision of the Appeal Division that the new trustee had no standing to sue the directors of the former trustee for breaching common law and fiduciary duties of care owed to the former trustee.[145] The High Court refused leave as they found that the pleadings needed to be amended so that the Appeal Division could answer the questions in a proper form so that the High Court could resolve the issue.

230 Comments made on the special leave application suggest that the High Court did accept that the issue raised may have been one appropriate for the Court to consider if it had been properly formulated. Nothing was said, however, about Re Enhill or Re Suco Gold.

231 In Collie v Merlaw Nominees Pty Ltd (in liq),[146] Warren J, as her Honour then was, considered the right of a creditor of a trustee to be subrogated to the right of indemnity held by the trustee. This case concerned an application for a declaration that a judgment debtor was entitled to be indemnified out of trust assets for the amount of the judgment, as the facts that gave rise to the judgment arose in connection with the administration of the trust, for which the assets were held.

232 In doing so, her Honour applied Re Enhill to the extent that it was found that a trust creditor was entitled to be subrogated to the trustee's right of indemnity out of the trust assets. Her Honour did not apply, nor was it necessary to apply, the proposition from Re Enhill that the right of indemnity constituted personal property of the trustee. Her Honour referred to the difference of approach between Re Enhill and Re Suco Gold on the question of whether the trustee's indemnity is property available to all creditors in the event of winding up of the trustee. That, however, was not an issue her Honour was called on to address. Rather, the issue was the existence of the creditor's right of subrogation, which was confirmed in Re Enhill.

233 Her Honour referred to the strong criticism of Re Enhill, especially that of R P Meagher and W M C Gummow in Jacobs' Law of Trusts in Australia, which is discussed below.[147] Nevertheless, in obiter dicta, her Honour stated that she was bound by the authority of Re Enhill. Her Honour said:[148]

Notwithstanding the criticism levied elsewhere against Enhill, it is authority that binds me. Furthermore on two subsequent occasions the Appellate Court of this Court has not criticised the principle for which Enhill stands namely, that the right of indemnity is available to the liquidator to be divided amongst the trustee's creditors generally.[149]

234 Her Honour went on to distinguish Re Enhill from the circumstances of the case, that was on the issue of the creditor's right of subrogation. Her Honour said:[150]

However, for present purposes, in Enhill, the full court did not deviate from the principle expressed earlier in Johnson and the other authorities in relation to the right of a creditor of a trustee to look to the trust assets by way of subrogation to the creditor of the trustee's right of indemnity. Of course, the distinguishing feature of Enhill was that the court was concerned with the entitlement of the liquidator and the costs of the winding up. No such fact arises in the present case.

235 As discussed above, the Full Court and the Appeal Division respectively did not need to, nor did they seek to, decide whether Re Enhill or Re Suco Gold was correct.

236 In distinguishing the case from Re Enhill, her Honour said that '[t]he costs and expenses of liquidation are separate from the costs of administering a trust. As a general proposition trust assets are only applied to trust liabilities.'[151]

237 The decision was appealed principally on the ground 'that the judge had no power to make such a declaration because Merlaw [the trustee] was now in liquidation and consequently, in accordance with the judgment of the Full Court in Re Enhill, the trustee's indemnity became property available to the liquidator for division among the trustee's creditors generally and her Honour's orders had the effect, so it was said, of granting the benefit of the right of indemnity to Mr Collie 'to the exclusion of Merlaw's other creditors'.[152]

238 On appeal in Nolan v Collie,[153] Ormiston JA acknowledged that Re Enhill had reached a controversial conclusion, but said it was not relevant in the case to decide whether it was correct or not and queried whether that could be done by a bench of three.[154] Ormiston JA (with whom Batt JA and Vincent JA agreed) said that:[155]

To refuse to make an appropriate declaration would seem a curious decision if indeed there would ordinarily be a right in a judgment creditor to stand in the shoes of a trustee who has a right of indemnification out of a trust estate. The right cannot be discretionary, except to the extent that courts of equity reserve to themselves a right to refuse to make equitable orders if the party seeking them has acted unconscientiously or is otherwise disqualified by reason of any other rule of equity. Nor, surely, could it matter that the trustee is in liquidation, except to the extent that the liquidator may have to deal differently with the claim for recoupment made by the subrogated party in order to give effect to the liquidator's obligations to deal with the assets under his control.

...

In other circumstances the Collie interests might, if Enhill be correct, have had to compete with other ordinary creditors of Merlaw, so that they would have to share rateably the amount the trustee could get in from the Prudent Trust assets by way of indemnity. In theory some such order could here be devised to protect those notional creditors, but there would seem no point in doing so here.

239 Nollie v Collie did not decide, nor find, that Collie, as a trust creditor, might have to compete with ordinary creditors of Merlaw, if Re Enhill was correct. That issue was not addressed. The issue solely for consideration was whether Collie, as creditor of the trust, was entitled to be subrogated to the trustee's right of indemnity out of the trust assets. Accordingly, Collie v Merlaw Nominees and Nolan v Collie are not decisions of a single justice of this Court or of the Court of Appeal, respectively, that applies the finding in Re Enhill that the trustee's right of indemnity from the trust assets (in the case of exoneration) is personal property of the trustee available in a liquidation to all creditors.

240 The learned authors of Jacob's Law of Trusts have addressed the issue of whether a trustee's right of indemnity was available in a liquidation to meet the claims of all creditors or just the creditors of the trust and said that the decision in Re Enhill was 'obviously' wrong. They said, '[i]ts vice is the assumption that trust property transferred to the trustee to meet a trust liability somehow ceases to be trust property.'[156] On the question of whether the trustee's indemnity can be used to pay the expenses of liquidation, the learned authors said that '[b]earing in mind that the costs and expenses of liquidation are something quite distinct and separate from the costs and expenses of the administration of the trust, and that the principle is that trust assets can only be applied to trust liabilities, it is difficult to see why Needham J is wrong'[157] in Re Byrne.

241 In Re Indopal Pty Ltd,[158] McLelland J followed Re Suco Gold, holding that the relevant trustee company was entitled to be indemnified out of the trust assets for the liabilities incurred as trustee, including the costs of the winding up. In Re Matheson; ex parte Matheson,[159] as discussed above, Spender J approved the approach of King CJ in Re Suco Gold. In Re Sutherland; French Caledonia Travel Service Pty Ltd (in liq),[160] Campbell J, of the Supreme Court of New South Wales, approved of Re Suco Gold on the issue that trust assets should be applied to meet trust debts. His Honour said because the liabilities that the trustee incurred in administration of the trust are in law the liabilities of the trustee, s 292 of the Companies Act 1961 (NSW) (reproduced in what is now s 556 of the Corporations Act) requires those pre-liquidation liabilities to be discharged in the order of priority there laid out. In Garra Water Investments Pty Ltd (in liq) v Outback Yard Nursery Pty Ltd,[161] Gray J applied the principles enunciated by King CJ in Re Suco Gold. As discussed below Brereton J in Re Independent rejected this proposition, holding that s 556 only applied to 'property of the company'.

242 In Re S & D International Pty Ltd (No 5),[162] I considered whether a liquidator's costs could be met from assets held on trust by the company in liquidation. I referred to Re Enhill and Re Suco Gold. In doing so, I did not need to address the issue of whether the assets of the trust could be used to meet non-trust liabilities of the company.

243 I note that since the hearing of this matter, the Federal Court handed down a decision in the case of Woodgate, In the matter of Bell Hire Services Pty Ltd (in liq),[163] which considered the application of the priority regimes to the distribution of assets amongst trust creditors. Farrell J, in reaching her decision, applied the reasoning of Re Independent and said, '[i]n my view, criticisms of the approach taken by Brereton J are misplaced and I will adopt that approach.'[164]

244 The receivers, liquidator, Commonwealth and CHH provided further submissions in response to the decision of Farrell J being handed down after this matter was heard.

245 The application brought by the liquidator in Bell Hire Services was uncontested. Farrell J noted the absence of a contradictor and decided that in view of the notice given and the small sum of money involved, the hearing should proceed. It is submitted by the receivers and the Commonwealth that Farrell J was not given the benefit of arguments in favour of following Re Enhill and rejecting Re Independent.

246 In this respect I note that the orders of Efthim AsJ, made In the matter of Pharmore Pty Ltd,[165] to which it was submitted I should conform, were also made without the benefit of a contradictor. In making the orders, his Honour stated:[166]

The assets of the company in liquidation are trust property. The Court was bound to follow Re Enhill and Re Suco Gold and did not follow Re Independent. The liquidators have a right to be indemnified from the assets in the Trust. The property of the Trust is subject to statutory priorities and is available for the costs and expenses and remuneration of the liquidators (pursuant to s 556(1)(a)of the Corporations Act).

247 These orders were also made after the hearing of this proceeding and were bought to my attention by the Commonwealth in support of their submission that I, too, should decline to follow Re Independent.

248 My researches have not disclosed any decision of any other non-Victorian court that agrees with the conclusion in Re Enhill that the trustee's right of indemnity against the trust assets constitutes a personal asset of the trustee available to meet all the trustee's creditors in insolvency. There are cases that refer to Re Enhill and Re Suco Gold but are dealing with different issues to those before me.[167]

249 As mentioned earlier, the cases indicate 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.

250 First, in Re Byrne (No 1), Needham J relied on the judgment of Salmond J in Official Assignee v Jarvis, where Salmond J said that there were two classes of indemnity: one where the indemnifying party has an interest in the extinction of the liability to which the indemnity relates, the other where there was no such interest. In the former, where a beneficiary was bound to indemnify the trustee against liabilities incurred in the execution of the trust, 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.'[168] In that case, the money the subject of the indemnity must be used to discharge the liability which caused the emergence of the indemnity. Although the cases have not gone as far, it seems to me, that it is in the interests of the trust that trust assets be used to meet trust liabilities. It goes without saying that if the trust is trading that the goodwill and value of the trust assets would be protected, or even enhanced, if trust creditors were paid rather than personal liabilities of the trustee.

251 Secondly, in Re Suco Gold, King CJ justified his finding that the trust assets were not available to be used to meet non-trust creditors on the grounds that the assets to which the trustee is entitled under his right of indemnity are trust assets and as such the trust assets may not be used for any other purpose than the authorised purposes of the trust. In particular, the trustee has no right to apply the trust property for his own benefit or the benefit of third parties. In addition, King CJ said that as the trustee creditors were subrogated to the rights of indemnity that the trustee had over all the trust assets, then the indemnity was not a personal asset of the trustee but was held by the trustee subject to the equitable rights of the trust creditors.

252 Thirdly, in Re Independent, Brereton J applied a similar train of reasoning to that in Re Suco Gold in rejecting Re Enhill. Brereton J was dealing with a trust that acted purely as a trustee, as in the case of Amerind. The trustee's right of indemnity was one of exoneration. All the creditors of the trustee had a right of subrogation to the trustee's right of indemnity which extended over all the assets of the trust for all the liabilities of the trustee. On liquidation, the liquidator took possession of the trustee's property. The property was all subject to the trustee's indemnity and the creditors had a similar charge over the trust assets under their right to be subrogated to the rights that the trustee had, which included the indemnity supported by a lien. The trustee's right of indemnity was subject to the creditors' right of subrogation, which was a proprietary right. This line of reasoning was applied by King CJ in Re Suco Gold and is also supported by the High Court in Re Savage and Octavo. In my opinion, it is probably the strongest ground for preferring this aspect of Re Suco Gold over Re Enhill.

253 Fourthly, in Re Richardson (No 2), the Court addressed the meaning of the word 'indemnity' in the context of a trustee incurring a debt on behalf of the trust. The Court held that an indemnity in that context required that the trustee be freed of the claim of the trust creditor. 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.

254 Although these four grounds all overlap to some extent, in my opinion, they do have separate elements to them that distinguish one line of reasoning from the other.

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.

257 As the discussion of the authorities make clear, there are two conflicting intermediate Court of Appeal decisions on the nature of the trustee's right of indemnity where the trustee is entitled to be indemnified out of the trust assets for a liability incurred on behalf of the trust. One is a decision of the Full Court of this Court and the other is a decision of the Full Court of the Supreme Court of South Australia: Re Enhill and Re Suco Gold. Further, there is a decision of the Supreme Court of New South Wales of a judge of co-ordinate authority: Re Independent.

259 For the reasons discussed below, I consider that the proper course in this particular case is to follow the reasoning in Re Independent.

260 In preferring the reasoning of Brereton J, I have considered the question of statutory interpretation and, secondly, what is required by the principle of 'one common law of Australia'. I will discuss the two ideas in turn here.

261 As discussed below, the authorities make clear that the interpretation of the provisions of the Companies Act 1961 (Vic) (Companies Act) are not binding in the interpretation of similar clauses in the Corporations Act.

262 The following principles were not the subject of submissions or arguments before me; although it was submitted by CHH that I was not bound by Re Enhill. The parties did not refer me to the following cases, nevertheless, they are clearly relevant to the present case. In submitting that I am bound by Re Enhill, the receivers or the Commonwealth did not refer me to any authorities on whether or not I am bound to follow Re Enhill.

263 As discussed above, the priority regime in question, in both ss 430 and 556 (by virtue of s 555), applies only to 'property of the company'.

265 It is proper to consider what the Commonwealth Parliament intended to be covered by the phrase 'property of the company'. It was open for the legislature to make explicit reference to the property of the trust, or included or excluded any particular form of property. The Parliament is taken to have chosen its words deliberately, and it is the role of this Court to determine what the Commonwealth Parliament intended by using the words 'property of the company'.

266 This question is not one which can be answered by Re Enhill, which also was a matter of statutory interpretation, and the question was similar to that posed in this case. As expressed by Lush J:[169]

The question to be decided on the motion is whether the liquidator of a trading trustee company is entitled to be paid his remuneration, costs and expenses out of moneys realized from the use or sale of trust assets.

267 The Court looked to a number of authorities in determining this question, as set out by Lush J and as referred to in the above discussion of Re Enhill.

268 The Court in Re Enhill was considering the meaning of 'property' and 'assets' as used in the Companies Act. Section 292(1) of that Act provided that certain debts were to have priority over other unsecured debts. Section 292(2) then provided as follows:

After provision is made for the costs and expenses referred to in paragraph (a) of subsection (1) [concerning the costs of the winding up], the debts of a class referred to in the remaining paragraphs of that subsection shall rank equally between themselves, and shall be paid in full, unless the property of the company is insufficient to meet them, in which case they shall abate in equal proportions between themselves.

269 The payments made according to the priority regime set out in the statute were therefore to be made from 'the property of the company.' Section 247(3) provided that the court may make an order 'as to the payment out of the [company] assets' for the costs of the winding up, where the assets were 'insufficient to satisfy the liabilities'. Similarly, s 224(2) provided that a liquidator was under a duty to 'reimburse the petitioner out of the assets of the company' for the costs of a winding-up application.

270 The Court in Re Enhill was asking what the Parliament of Victoria intended when it considered the phrase 'property [or assets] of the company'.

271 The question before me now is: what is the relevance of a finding of the meaning of 'property [or assets] of the company' in the Companies Act to the term 'property of the company' in the Corporations Act?

272 The history of the corporations legislation in this country is a long one. It is necessary to briefly recount some parts of that history here, though a more complete account can be found elsewhere.[170]

273 The Companies Act was part of a system of national uniform legislation, coming into force in each state in 1962 or 1963. Ordinances were passed by the Commonwealth government for the territories, coming into force in 1962 (ACT) and 1963 (Northern Territory).

274 By way of the Companies Act 1981 (Cth), a new scheme was implemented, primarily led by the Commonwealth. The Companies Act 1981 (Cth) applied to the ACT (for constitutional reasons), with each state enacting uniform legislation for their own jurisdiction.

275 A new arrangement came into force in each state and territory by 1991, whereby each jurisdiction passed an Act applying the Corporations Act 1989 (Cth). The previous scheme continued to operate for transitional reasons, though the new scheme prevailed in the event of a conflict.

276 By 2001, the states agreed to refer constitutional power to the Commonwealth in order to enact the Corporations Act.

277 In interpreting the meaning of 'property of the company' in the Corporations Act, there are four characteristics of that Act which guide its interpretation:

(a) The Corporations Act and Companies Act are different statutes, passed by different legislatures in different jurisdictions.

(b) The Corporations Act is a Commonwealth Act.

(c) The Corporations Act and Companies Act appear to be in pari materia.

(d) The term 'property of the company' in the Corporations Act was a re-enactment of the same term used in the previous corporations legislative schemes, which had been subject to judicial interpretation.

278 These factors, taken collectively, indicate the proper course of interpretation to be adopted in this case.

279 The decision in Re Enhill concerned Victorian legislation, the Companies Act. The Act now under consideration in the subject proceeding is the Corporations Act. That is an Act of the Commonwealth Parliament. The decision in Re Enhill cannot be considered to be a precedent which binds interpretation of the Commonwealth statute.

280 In construing the words of a statute, it is the words of the statute itself which are determinative, not the interpretation previously placed on those words by a court. This is consistent with the constitutional relationship between the courts and the legislature. This was given expression by the Privy Council in Ogden Industries Pty Ltd v Lucas:[171]

It is quite clear that judicial statements as to the construction and intention of an Act must never be allowed to supplant or supersede its proper construction and courts must beware of falling into the error of treating the law to be that laid down by the judge in construing the Act rather than found in the words of the Act itself.

No doubt a decision on particular words binds inferior courts on the construction of those words on similar facts but beyond that the observations of judges on the construction of statutes may be of the greatest help and guidance but are entitled to no more than respect and cannot absolve the court from its duty of exercising an independent judgment.

281 In Marshall v Director-General, Department of Transport,[172] McHugh J discussed the relationship between statutory interpretation and precedent across jurisdictions. His Honour noted the similarity of language in a Queensland statute to that in other Acts and said:[173]

But that does not mean that the courts of Queensland, when construing the legislation of that State, should slavishly follow judicial decisions of the courts of another jurisdiction in respect of similar or even identical legislation. The duty of courts, when construing legislation, is to give effect to the purpose of the legislation. The primary guide to understanding that purpose is the natural and ordinary meaning of the words of the legislation. Judicial decisions on similar or identical legislation in other jurisdictions are guides to, but cannot control, the meaning of legislation in the court's jurisdiction. Judicial decisions are not substitutes for the text of legislation although, by reason of the doctrine of precedent and the hierarchical nature of our court system, particular courts may be bound to apply the decision of a particular court as to the meaning of legislation.

282 The first paragraph of their Lordships' comment in Ogden was later quoted by Gummow J in Brennan v Comcare.[174] His Honour then continued:[175]

Those remarks apply a fortiori where what is involved is the translation of remarks construing one statute to the construction of another. They also point to a significant difference in the tasks of the courts in applying the common law and in construing statutes.

The judicial technique involved in construing a statutory text is different from that required in applying previous decisions expounding the common law. In the latter class of case, the task is to interpret the legal concepts which find expression in the various language used in the relevant judgments. The frequently repeated caution is against construing the terms of those judgments as if they were the words of a statute. The concern is not with the ascertainment of the meaning and the application of particular words used by previous judges, so much as with gaining an understanding of the concepts to which expression was sought to be given.

The distinction is usefully expressed in the following passage from R A Posner's work The Problems of Jurisprudence (1990), p 248:

'Translation may be imperfect and alter the meaning of the original doctrine; nevertheless many common law doctrines have a stable meaning, though expressed in a variety of different ways. We are not afraid that we would lose the meaning of negligence if we put it in different words from those used by Learned Hand, or William Prosser, or some other authoritative expositor of the concept.

Statutory law differs in that the statutory text - the starting point for decision, and in that respect (but only that respect) corresponding to judicial opinions in common law decision making - is in some important sense not to be revised by the judges, not to be put into their own words. They cannot treat the statute as a stab at formulating a concept. They have first to extract the concept from the statute - that is, interpret the statute. (There is a sense in which common law judges 'interpret' common law, but it is the sense in which 'interpretation' means 'understanding'.)'

Further, in a legal system which involves the separation of powers, it is particularly significant that the source of the common law is decisions of the judges, whereas statutory law is an expression of "the will of the legislature"...

283 This passage was cited, in turn, by three members of the High Court in McNamara v Consumer, Trader and Tenancy Tribunal.[176] In that case, the High Court considered whether the application of a statute to a statutory authority was an application to the Crown, such that questions of Crown immunity arose. The same issue had been considered by the court in Wynyard Investments Pty Ltd v Commissioner for Railways (NSW),[177] where the court considered 'an identically worded provision' to that considered in McNamara.[178] McHugh, Gummow and Heydon JJ made the following statement:[179]

It would be an error to treat what was said in construing one statute as necessarily controlling the construction of another; the judicial task in statutory construction differs from that in distilling the common law from past decisions.

284 Despite this, their Honours went on to sound a note of caution:[180]

However, that does not mean that the Court is now at liberty to ignore the reasoning of the majority in Wynyard Investments and, as Gibbs J once put it,[181] "to arrive at [its] own judgment as though the pages of the law reports were blank".

285 Rares J discussed the decision in McNamara in a speech given extra-curially in 2008 and made the following statement on the non-binding nature of the interpretation of one act on the interpretation of another:[182]

The decision in McNamara raises yet another problem. There, the High Court held that it was not bound by its own earlier decision construing identical words in a statute which had subsequently been repealed. Thus, where an intermediate appellate court has determined the law in respect of repealed Commonwealth or uniform national legislation which has been re-enacted in exactly the same terms, those decisions are not binding at all. It follows that decisions concerning the construction of the Corporations Law, even by the High Court itself, are not binding on the construction of the Corporations Act 2001, even though they may be in identical terms.

286 The effect of these authorities is that the interpretation of one statute is not a binding authority when interpreting another statute. This applies a fortiori when the two Acts have been passed by different legislatures - this result follows from fundamental constitutional principles. The role of the courts is to interpret the will of the parliament which passed the Act. The will of the Commonwealth Parliament is not the will of the Victorian, or New South Wales, or any other parliament.

287 This was expressed succinctly by Gibbs J in Commissioner of Taxation of the Commonwealth v ICI Australia Ltd.[183] That case asked whether extraction of salt in Queensland was a 'mining operation' for the purposes of the Income Tax Assessment Act 1936 (Cth). The mining of salt was also governed by Queensland legislation, but the term 'mining operation' was not defined there. In looking to the Queensland legislation for guidance in interpreting the Commonwealth Act, Gibbs J said that:[184]

State legislation cannot control the interpretation of a Commonwealth statute, but the fact that the obtaining of salt in this way is treated as a mining operation by the State legislation that applies to the case is relevant in considering whether it is also a mining operation within the meaning of the [Commonwealth] Act...

288 The fact that state Acts in pari materia with a Commonwealth Act may be persuasive will be dealt with below. An interpretation placed on the words 'property of the company' in the Victorian Companies Act may be useful, and persuasive, when interpreting the Commonwealth Corporations Act: the pages of the law reports are not blank. Such an interpretation is, however, by no means binding. For present purposes, it is enough to focus on the opening words of Gibbs J quoted above, 'State legislation cannot control the interpretation of a Commonwealth statute.' The will of the Commonwealth Parliament must prevail, and it is bound neither by the will of the Victorian Parliament nor the courts' interpretation of that will.

289 In Australian Securities Commission v Marlborough Gold Mines Ltd,[185] a unanimous High Court made the following statement, in circumstances where the Western Australian Supreme Court declined to follow a decision of the Full Court of the Federal Court:[186]

Although the considerations applying are somewhat different from those applying in the case of Commonwealth legislation, uniformity of decision in the interpretation of uniform national legislation such as the [Corporations] Law is a sufficiently important consideration to require that an intermediate appellate court - and all the more a single judge - should not depart from an interpretation placed on such legislation by another Australian intermediate appellate court unless convinced that that interpretation is plainly wrong.

290 The Corporations Law referred to was the precursor to the current Corporations Act, as described earlier. Another unanimous judgment of the High Court, in Farah Constructions v Say-Dee Pty Ltd,[187] later affirmed the statement made in Marlborough Gold Mines:

Intermediate appellate courts and trial judges in Australia should not depart from decisions in intermediate appellate courts in another jurisdiction on the interpretation of Commonwealth legislation or uniform national legislation unless they are convinced that the interpretation is plainly wrong.[188] Since there is a common law of Australia rather than of each Australian jurisdiction, the same principle applies in relation to non-statutory law.

291 A decision of an intermediate appellate court interpreting Commonwealth legislation may be considered 'strongly persuasive' in 'resolving the point at issue at all levels in Australia below the Full High Court.'[189] This statement was made by Street CJ in the New South Wales Court of Appeal, agreeing with a decision of the Victorian Court of Appeal. When a single judge is faced with such a decision, it would be binding rather than 'strongly persuasive'.

292 Decisions of single judges interpreting Commonwealth legislation also ought to be ordinarily followed by other single judges. As Rogers J said in the New South Wales Supreme Court:[190]

In my view it is of cardinal importance in the proper administration of justice that single judges of State Supreme Courts exercising federal jurisdiction should strive for uniformity in the interpretation of Commonwealth legislation. Unless I were of the view that the decision of another judge of co-ordinate authority was clearly wrong I would follow his [or her] decision.

293 As a matter of judicial comity,[191] it is 'important, wherever possible, that the decisions of State courts on the interpretation of Commonwealth legislation should be consistent.'[192]

294 As recounted above, there is something of a familial relationship between the Companies Act and the Corporations Act. The two are part of an attempt, extending over decades, to create a single national framework for the regulation of corporate activity. In such circumstances, it is necessary to recognise that interpretation of the Companies Act is not to be ignored when interpreting a similar provision of the Corporations Act. This ensures the consistent application of the law.

295 What, exactly, is the relationship between the two Acts? The answer to this question indicates the degree of persuasiveness of decisions concerning the Companies Act - such as Re Enhill - when interpreting the Corporations Act.

296 The two Acts are not part of a set of national uniform laws in the way that the Companies Acts in each State formed such a scheme. The principles promoting consistent interpretation of uniform national laws cannot support consistent interpretation between the Companies Act and Corporations Act.

297 A second principle of statutory interpretation relevant to the link between the Companies Act and the Corporations Act is that prior statutory provisions can be used in interpreting a statute.

298 The changes in the wording of legislation over time can indicate the changes in legislative intention:[193]

The good sense of this approach is obvious. If one views the whole scheme of the legislation, it may be possible to see the way in which the legislature is dealing with the subject matter: whether it is extending or contracting benefits; whether it is increasing penalties and so on. Such information is likely to be of use to a court in its endeavour to understand the legislature's wishes.

299 Caution is needed when applying this principle, however: '[t]he first step in the construction of [a] new provision is to construe it according to its terms and not to approach it through the fog of authorities on its predecessor.'[194]

300 Here, the phrasing of the statute has not (relevantly) changed: the phrase 'property of the company' remains and other changes in the legislation do nothing to shed light on the meaning of that phrase.

301 Arguably, this lack of change indicates that the Commonwealth Parliament intended no change from the meaning applied to those words in Re Enhill. But, if that argument is accepted, it must equally apply to the decision in Re Suco Gold.

302 Perhaps the most useful basis on which to assess the relevance of the state-based Companies Acts to the Corporations Act is on the basis that they are 'similar Acts' or in pari materia.

303 Two Acts may be in pari materia even where they originate in different jurisdictions, as is the case here. Thus, in Dampier Salt (Operations) Pty Ltd v Collector of Customs,[195] Lee J held that in determining whether an operation was a 'mining operation' for the purposes of the Excise Act 1901 (Cth), '[r]egard should be had' to Western Australian legislation which also governed those operations.[196] This follows the approach of Gibbs J in Commissioner of Taxation of the Commonwealth v ICI Australia Ltd,[197] quoted earlier.

304 It should be noted that the mining operations in Dampier Salt and ICI were governed simultaneously by the state and Commonwealth legislation. Any presumption as to consistent interpretation is, perhaps, stronger in such circumstances than it is in a case where the state legislation has been repealed and replaced by Commonwealth legislation. Nevertheless, it is true to say that 'statutory expressions in one jurisdiction should be construed in the same way as like provisions in another jurisdiction.'[198]

305 The next relevant factor in this matter is the following principle applied in this passage by Griffiths CJ to the interpretation of the word 'necessary':[199]

Now, it is usual to credit the legislature with a knowledge of the existing law on the subject dealt with, and when we find that such a meaning has been constantly attributed to the word "necessary" in other Acts dealing with similar matters, they may have reasonably expected that the word would in this Act be construed as having the same meaning.

306 In Strachan v Brown and Visser,[200] Underwood J of the Tasmanian Supreme Court considered penalties for fishing of under-sized fish. The question of under-sized catches was regulated in Tasmania by a regulation, and in South Australia by a statute. The latter had been the subject of judicial interpretation. In Munday v Brown,[201] the South Australian interpretation was distinguished as inapposite to the Tasmanian regulation. The Tasmanian legislature then repealed the regulation and enacted a new statutory provision in substantially the same terms as the South Australian Act. The new Tasmanian provision came before Underwood J in Strachan, who held as follows:[202]

By enacting the Act, Parliament abandoned the provisions of the [previous regulation] in favour of the [new Tasmanian] Act... Having regard to the similarity between the words of the South Australian provision as enacted in 1987, and the Act ... it is reasonable to infer that Parliament intended the subsection to bear the same meaning that the South Australian Full Court attributed to the corresponding South Australian section.

There are also authorities to support the proposition that where an enactment is repealed and re-enacted after judicial interpretation in another jurisdiction, the legislature is assumed to know the judicial interpretation placed on the statutory words and intended that interpretation to apply to the re-enactment.

308 One of the cases cited by Underwood J in support of this proposition was Perth Local Board of Health v Maley,[204] quoted earlier.

309 The principles expressed above all concern the use of one statute in interpreting another and show that how persuasive one statute can be said to be in construing another will depend upon the precise relationship between those two statutes. The lack of precision in such matters is well expressed by the New South Wales Court of Appeal in Gett v Tabet,[205] commenting on the dictum of McHugh J in Marshall v Director-General, Department of Transport,[206] extracted above. The Court of Appeal stated:[207]

The precise scope of this dictum remains to be elucidated. It is not, for example, directed to general law principles. Marshall was concerned with a line of English authority, with respect to a phrase found in the Queensland legislation, which the High Court declined to follow. Somewhat different principles may apply in circumstances where two Australian legislatures, largely contemporaneously, adopt similar or identical language in pursuit of a common statutory purpose. In such circumstances, the coherent development of the law within Australia would not be promoted by the courts of one jurisdiction adopting a different construction to those of another. On the other hand, Walker Corporation[[208]] indicates that a more relaxed approach might be adopted in such circumstances than would be the case with respect to federal laws or national uniform legislation.

310 Following from dicta from those such as those of McHugh J in Marshall, Gummow J in Brennan v Comcare and the plurality in McNamara, the first conclusion which I draw is that the words of one legislature cannot be considered to bind the meaning intended by another legislature. 'State legislation cannot control the interpretation of a Commonwealth statute.'[209]

311 This is consistent with the task of the court to determine the will of the legislature which passed the Act. That task cannot logically be accomplished by looking to the expressed will of another legislature. Such an inquiry may be useful - particularly in the case of national uniform legislation, when the intention of one legislature can safely be said to be the same as another - but cannot detract from the need to ascertain the intention of the legislature which passed the relevant Act.

312 The Full Court in Re Enhill considered the Companies Act, which was passed by the Victorian Parliament in 1961. It is 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.

313 However, the pages of the law reports are not blank. The decision in Re Enhill remains highly persuasive. The words considered by the Full Court were relevantly similar to those under consideration here. The Companies Act was an early progenitor of the Corporations Act. The statutes are clearly in pari materia and their familial relationship has been noted repeatedly in these reasons.

314 The difficulty in this case arises from the fact that the same can be said of the decision in Re Suco Gold. That, too, was a decision of a Full Court considering the South Australian Companies Act, part of the national uniform legislation considered in Re Enhill and equally a precursor to the current Commonwealth Act. Whatever added persuasiveness such principles give to the decision in Re Enhill apply equally to Re Suco Gold.

315 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 courts of another jurisdiction] and intended that interpretation to apply to the re-enactment.'[210] The Commonwealth legislature may have known and intended the interpretation placed on the words by Re Enhill, but why could not the same be said of the opposing interpretation set out by Re Suco Gold?

316 These principles of statutory interpretation are all clearly relevant, but give an unfortunate lack of guidance in this particular case.

317 The final point to be made in relation to the principles discussed above is that uniformity of interpretation of a Commonwealth Act is to be preferred whenever possible. This applies as much to the Corporations Act as any other Act.

318 I am faced with two highly persuasive appellant level decisions, neither of which is strictly binding upon me, and a New South Wales decision of a single judge of co-ordinate authority. In interpreting the relevant provisions before me, I must have regard to the desirability of a uniform interpretation of Commonwealth legislation to the extent possible, as is discussed below.

319 In Patrick Stevedores Holdings Pty Ltd v DPP,[211] I was faced with a similar situation of two contradictory and persuasive earlier decisions.

320 On one hand was a decision of the Full Court of this Court. On the other was a decision of the Full Court of the Federal Court. Ultimately, as in this case, I found that neither was strictly binding in relation to the case at hand, as the questions in each were distinguishable. At trial, I followed the reasoning of the Full Court of the Federal Court (and the cases following it) in preference to that of the Full Court of this Court.

321 I gave three bases for doing so, summarised in the following passage (Nicol is the decision of the Full Court of this Court and Oates v Williams that of the Full Federal Court):[212]

I sum up the position as follows. [1] I find the ratio of Nicol is not directly determinative of the issue before me. I find that the reasoning in Oates v Williams [and the cases which followed it] persuasive and propose to follow these authorities.

[2] If, contrary to my finding, Nicol is direct authority that (absent other authorities) I would normally be bound to follow, then I find that I should not do so but instead follow the authority of Oates v Williams that has found Nicol to be wrong.

[3] If Nicol is not direct authority but considered dicta that (absent other authorities) I should follow, then for similar reasons I feel bound to follow the considered dicta of Oates v Williams.

322 The Court of Appeal[213] recognised that a trial judge facing these conflicting authorities was in 'a most invidious position.'[214] The Court of Appeal agreed that I was 'entitled to' find that the Full Federal Court case was highly persuasive.[215] The Court of Appeal did, however, find that seriously considered dicta of intermediate appellate courts was not necessarily binding on single judges in other jurisdictions as a result of Farah Constructions. This casts doubt over conclusion [3], above.

323 The Court of Appeal then made the following comment in relation to the decision to follow the Full Federal Court line of authority:[216]

We make no criticism of his Honour for doing so. As a judge at first instance, he was faced with the difficulty that there was a line of authority, some of it highly persuasive, that ran directly counter to [the Victorian Full Court decision].

324 The following comment of the Court of Appeal also ought to be noted:[217]

In our opinion, an intermediate appellate court such as our own, faced with conflicting decisions of other intermediate appellate courts, is not bound to follow any one of those decisions. The position might be different if, post Farah, an intermediate appellate court had said that an earlier decision of that court, or of another intermediate appellate court, was plainly wrong. In such circumstances, this court might be bound to follow the later decision unless we took the view that the later decision was 'plainly wrong'. Failing that, this court is at liberty to state the law as it thinks appropriate.

325 The Court of Appeal appears to have accepted in this case that, where a decision of the Full Court of this Court conflicts with a decision of another intermediate appellate court, a trial judge may follow that decision which is founded upon the more preferable reasoning. This applies at least where the authorities are highly persuasive without being binding.

326 Secondly, as discussed above, unless I am of the opinion that a decision of judge with co-ordinate authority is plainly wrong, wherever possible, it should be followed for consistent interpretation of Commonwealth legislation.

327 As explained elsewhere in these reasons, I find the reasoning in the line of cases leading to the conclusion that the trustee's right of indemnity is trust property available only to meet trust liabilities preferable.

328 Further, I consider that this approach, as it is consistent with Re Independent, which was considering the Corporations Act, and the provisions relevant to the present case, conforms to the principle (discussed further below), that it is highly desirable to have a uniform interpretation of Commonwealth statutes where possible. I should follow that decision unless I consider that it is plainly wrong. I do not consider that the decision is plainly wrong.

329 The decision in Re Enhill has not been followed elsewhere. Indeed, it has been criticised. At present, it is an outlier in corporations law. If corporations law was governed by individual statutes in each state - as was the case when Re Enhill was decided - this would not necessarily be problematic from a legal perspective (though undesirable from a commercial perspective). In the case of Commonwealth law, however, the creation or perpetuation of an anomalous position in Victoria is not to be preferred.

330 For the reasons given above, I do not consider that either Re Enhill or Re Suco Gold is a binding precedent in interpreting the Corporations Act. The interpretation of the will of the Victorian or South Australian legislatures, when passing the respective Companies Acts, cannot bind the Commonwealth Parliament, some 40 years after those Acts were passed. Nevertheless, each decision remains highly persuasive. Given that the Act in this case is a Commonwealth statute, the preference for uniform interpretation ought also to be borne in mind, along with the decision of Brereton J in Re Independent. The questions that therefore must be answered are whether its reasoning of 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 is plainly wrong.

331 In respect of Re Enhill, I have determined that is not the case. The reasoning in Re Enhill may yet have applications in Victorian law, where it remains good authority. Insofar as this matter calls for the exercise of federal jurisdiction, however, I would not extend its application.

332 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), I find that decision sufficiently persuasive to extend its application to the Corporations Act. As to whether the priority regimes apply to trust property, I would not extend the application of Re Suco Gold.

333 As I have said, I am not satisfied that Brereton J's decision that the trustee's right of indemnity is not personal property of the trustee but is held on trust for the trust creditors, is plainly wrong. On the contrary, I agree with Brereton's decision in Re Independent.

334 The analysis above has considered the issues in this matter from the perspective of statutory interpretation. The term 'property of the company', however, is one which derives content from the common law. The below discussion considers the approach that should be taken in view of the High Court's repeated emphasis that Australia has but one common law.

335 In Kable v Director of Public Prosecutions (NSW),[218] McHugh J said that:

Unlike the United States of America where there is a common law of each State, Australia has a unified common law which applies in each State but is not itself a creature of any State. Perhaps the validity of that proposition is not as readily apparent to a State judge bound by the authority of his or her own Full Court or Court of Appeal as it is to a judge of a federal court who must apply the common law... But that there is a common law of Australia as opposed to a common law of individual States is clear.

In exercising federal jurisdiction, a State court must deduce any relevant common law principle from the decisions of all the courts of the nation and not merely from the decisions of the higher courts of its State.

337 The following year, a unanimous High Court held in Lange v Australian Broadcasting Corporation that 'one common law operates in the federal system established by the Constitution.'[220]

338 In Re Wakim; Ex parte McNally,[221] Gummow and Hayne JJ made the following statement:[222]

[W]hen it is said that there is an "integrated" or "unified" judicial system in Australia, what is meant is that all avenues of appeal lead ultimately to this Court and there is a single common law throughout the country. This Court, as the final appellate court for the country, is the means by which that unity in the common law is ensured.

339 In the same year, Gaudron, Gummow and Hayne JJ clarified that the existence of state-based rules of precedent:[223]

[D]oes not dictate the conclusion that until there is a decision of the High Court the common law of Australia does not exist, any more than before 1873 it would have been true to say that there was not one English common law on a point because the Court of King's Bench had differed from the Court of Common Pleas.

340 In perhaps the clearest statement of the relationship of intermediate appellate courts to the body of the common law, their Honours said:[224]

[T]he doctrine of precedent is now central to any understanding of the common law in Australia. To assert that there is more than one common law in Australia or that there is a common law of individual States is to ignore the central place which precedent has in both understanding the common law and explaining its basis.

...

This Court is placed by s 73 of the Constitution at the apex of a judicial hierarchy to give decisions upon the common law which are binding on all courts, federal, State and territorial. Different intermediate appellate courts within that hierarchy may give inconsistent rulings upon questions of common law. This disagreement will indicate that not all of these courts will have correctly applied or declared the common law. But it does not follow that there are as many bodies of common law as there are intermediate courts of appeal. The situation which arises is not materially different to that which arises where trial judges in different courts or within the same court reach different conclusions on the same point of law.

341 And later in the same judgment:[225]

As indicated above, from time to time there will be decisions made by courts of record which will bind courts lower in the relevant curial hierarchy but which are not decisions made by this Court as the final appellate court for Australia. Because that is so, it is tempting, as McHugh J pointed out in Kable, for a State judge bound by the authority of his or her own Full Court or Court of Appeal to conclude that the common law for the State is fixed by that appellate decision. And inevitably there will be times when intermediate appellate courts do not speak with one voice on particular questions. It by no means follows, however, that a common law rule enunciated by the appellate courts of that State is a rule which is or should remain peculiar to that State. This Court is the final appellate court for the nation. When an appeal is dealt with in this Court, and its reasons are published, those reasons will form part of the common law of Australia and will bind all courts in the country. The Court never has and never should seek to identify some common law rule that is peculiar to one or more of the States. And yet that is the role which would be assigned to it if there were more than a single common law of Australia.

342 Read together, these passages from Lipohar indicate two propositions. First, there is a single and unitary common law of Australia, whether the High Court has ruled on a given point or not. Second, the fact that there are conflicting intermediate appellate court decisions does not mean that a rule enunciated by the appellate court of one state must remain a peculiar rule within that state.

343 The following year, five members of the High Court made the following statement in relation to a question of choice of law in a claim based in tort:[226]

[B]ecause there is a single common law of Australia, there will be no difference in the parties' rights or obligations on that account, no matter where in Australia those rights or obligations are litigated.

344 In Farah Constructions, as quoted earlier, the High Court stated that courts in one jurisdiction ought not depart from decisions in other jurisdictions concerning Commonwealth or uniform national legislation, unless convinced that such decisions are plainly wrong. The Court continued on to say that '[s]ince there is a common law of Australia rather than of each Australian jurisdiction, the same principle applies in relation to non-statutory law.'[227]

345 In the later decision of Cal No 14 Pty v Motor Accidents Insurance Board,[228] the High Court considered an appeal from the Full Court of the Supreme Court of Tasmania. In considering the nature of a duty owed by a publican to customers to protect customers from the consequences of the alcohol the customer chose to consume, the Full Court of the Supreme Court of Tasmania had not followed the decision of the Court of Appeal of New South Wales in South Tweed Heads Rugby League Football Club Ltd v Cole[229] on the nature of that duty. The judge at first instance did follow the ratio decidendi in Cole's case of the decision of the Court of Appeal of New South Wales. The case had gone to the High Court, but no majority view on the duty was expressed although the appeal had been dismissed.

346 Gummow, Heydon and Crennan JJ held that it was the duty of the trial judge in Tasmania to follow the decision of the New South Wales Court of Appeal unless he thought it plainly wrong. The Court clarified the relationship between the statement of law in Farah Constructions and its predecessors:[230]

It was said by the New South Wales Court of Appeal in Gett v Tabet that Farah Constructions "expanded" the principle applied to the construction of national legislation and explained in Australian Securities Commission v Marlborough Gold Mines Ltd. But that is not correct. The principle has been recognised in relation to decisions on the common law for a long time in numerous cases before the Farah Constructions case. It was also recognised in Blow J's judgment in this very case. The principle simply reflects, for the operation of the common law of Australia within Australia, the approach which this Court took before 1986 in relation to English Court of Appeal and House of Lords decisions, as stated in Wright v Wright.

347 Their Honours continued on to note that unless it thought the decision plainly wrong, it was the 'duty' of the Full Court of the Tasmanian Supreme Court to follow the decision of the New South Wales Court of Appeal.[231] Its failure to do so was detrimental to the law:[232]

If these appeals had not been brought, there would have been an undesirable disconformity between the view of the New South Wales Court of Appeal as to the common law of Australia and the view of the Tasmanian Full Court majority. At best the Full Court decision would have generated confusion. At worst it would have encouraged the commencement of baseless and ultimately doomed litigation, to the detriment both of the unsuccessful plaintiffs and of the wrongly vexed defendants.

348 By contrast, three members of the High Court in Newcrest Mining Ltd v Thornton[233] praised the Western Australia Court of Appeal for following a decision of the New South Wales Court of Appeal concerning the interpretation of legislation which, while not uniform, was identical to provisions in four other states. This approach was said to be consistent with the direction given in Farah Constructions.[234]

349 Although it appears that I may refuse to follow a decision of an intermediate court if I consider it is plainly wrong, that may not apply to a decision of a court above me in the Victorian hierarchy. The foundation for this distinction is that the Court of Appeal may correct the decision of trial judges which are so bound. It is unnecessary for me to decide the point, as I have found that Re Enhill is not binding on me. It is important, however, to recognise the established authorities on the issue of stare decisis.

350 In Viro v The Queen,[235] the High Court considered whether it was bound by decisions of the Privy Council after appeals to the Privy Council from decisions of the High Court were removed under the Privy Council (Appeals from the High Court) Act 1975. Barwick CJ said that:[236]

The essential basis for the observance of a decision of a tribunal by way of binding precedent is that that tribunal can correct the decisions of the court which is said so to be bound.

The modern English rule is usually said to be that 'every court is bound to follow any case decided by a court above it in the hierarchy:' Cross, Precedent in English Law, 2nd ed.1968, p 6 ...

The first duty of a court is to administer justice according to law. However; in the case of an inferior court operating within a system where the doctrine of precedent applies, the existence of authority binding upon it determines for it what it must understand to be the law. It must accept the law to be as that precedent authority has declared it to be, whatever may be its own inclinations in the matter. The sanction implicit in the doctrine of precedent is simple and effective: if an inferior court fails to observe the doctrine the superior court will correct its decision on appeal. Thus, the existence of an appeal is inherent in and essential to the doctrine.

353 See also the observations of Mason J at 135 and Jacobs J at 150-151. Reference can also be made to Hawkins v Clayton.[239] In Hickin v Carroll (No 2), Kunc J said:[240]

It is trite law that as a judge sitting at first instance, I am bound to apply the principles of law laid down by courts higher in the appellate hierarchy. In this case that means decisions of the NSW Court of Appeal and the High Court of Australia. A court lower in the appellate hierarchy is bound by the ratio decidendi of a decision in a higher court in that hierarchy. The ratio is a rule of law expressly or impliedly treated by the judge as a necessary step to reaching his or her conclusion.[241]

354 The principle that the trial division is bound by the ratio of decisions of the Court of Appeal, not what they consider the correct position to be, has been expressly approved by this Court in Engebretson v Bartlett[242] and Lew Footwear Holdings Pty Ltd v Madden International Ltd.[243]

355 The principles have been succinctly summarised by Blue J in Attorney-General (SA) v Kowalski:[244]

The doctrine of stare decisis relates to the binding nature of judicial decisions as to the law. All Australian Courts are bound by the decision of the High Court as to the law. All State courts in South Australia are bound by the decisions of the Full Court of this court as to the law. Magistrates are bound by decisions of single Judges of this court as to the law.

In general, courts in one hierarchy are not bound by decision of courts in other hierarchies as to the law. For example a single Judge of this court is not bound by a decision as to the law of a single Judge of the Supreme Court of a State or Territory or the Federal or Family Courts. However, unless considered to be plainly wrong courts in Australia apart from the High Court, are effectively bound by decisions of intermediate appellate courts of another jurisdiction as to the common law and uniform laws.

356 There is one decision amongst the High Court's statements which, perhaps, adds some caution to these dicta. In Sweedman v Transport Accident Commission,[245] a New South Wales driver was sued by the Victorian Transport Accident Commission ('TAC') for damage suffered by a Victorian driver in New South Wales. Statutes of each state set up differing regimes, with the TAC suing under the Victorian statute in the Victorian courts. Four members of the Court stated that:[246]

[I]t is well settled that (putting to one side consideration of specific provisions such as ss 51(ii), 51(iii), 92, 99 and 117) there is no general requirement in the Constitution that a federal law such as s 80 of the Judiciary Act have a uniform operation throughout the Commonwealth. In addition, s 118 of the Constitution does not require certainty and uniformity of legal outcomes in federal jurisdiction or otherwise.

357 Section 80 of the Judiciary Act 1903 (Cth) reads as follows:

So far as the laws of the Commonwealth are not applicable or so far as their provisions are insufficient to carry them into effect, or to provide adequate remedies or punishment, the common law in Australia as modified by the Constitution and by the statute law in force in the State or Territory in which the Court in which the jurisdiction is exercised is held shall, so far as it is applicable and not inconsistent with the Constitution and the laws of the Commonwealth, govern all Courts exercising federal jurisdiction in the exercise of their jurisdiction in civil and criminal matters.

358 Section 118 of the Constitution provides that:

Full faith and credit shall be given, throughout the Commonwealth to the laws, the public Acts and records, and the judicial proceedings of every State.

359 I do not consider that these statements detract from the High Court's clear injunction, expressed in the many cases considered above (some of which post-date Sweedman), to apply the one common law of Australia.

360 The High Court's focus on a single common law is, as recognised by McHugh J in Kable, difficult for a single judge to reconcile with the ordinary rules of precedent.

361 In applying the principles considered above to the conflicting authorities before me, I find it useful to begin with the statement of Gaudron, Gummow and Hayne JJ in Re Wakim:[247]

Different intermediate appellate courts within that hierarchy may give inconsistent rulings upon questions of common law. This disagreement will indicate that not all of these courts will have correctly applied or declared the common law. But it does not follow that there are as many bodies of common law as there are intermediate courts of appeal.

362 The decision in Re Enhill is anomalous. It is not representative of the common law as it is understood in other jurisdictions, including the Federal Court. This suggests strongly that the decision is not a proper expression of the common law of Australia.[248]

363 I am required to apply the common law of Australia in the context of a Commonwealth statute. As Leeming JA has written extra-curially, 'it would often be overly simplistic to distinguish common law from statute. In most cases, there is an amalgam of both.'[249] Here, the Corporations Act refers to a common law term. That common law is the common law of Australia.

364 I do not consider that the Commonwealth Parliament could have intended to refer to one common law when the Corporations Act was being applied in Victoria, and another common law when applying the Corporations Act elsewhere.

365 Rather, I consider that the Commonwealth Parliament's words refer to the common law of Australia and that the common law of Australia is reflected in the numerous cases considering the nature of a trustee's right of indemnity. In applying the statute, I must apply that law. This avoids a deleterious difference in parties' rights when applying the Corporations Act in Victoria,[250] and an 'undesirable disconformity' in that application.[251]

366 It is unclear from the High Court statement in Farah whether I as a trial judge can refuse to follow an intermediate appellate court if I think the decision is plainly wrong. ASIC v Marlborough suggests that 'even more so' a single judge should not depart from the decision of another intermediate appellate court.

367 The interpretation of s 433(3) of the Corporations Act involves the interpretation of Commonwealth legislation. The meaning of 'property of the company' also involves application of the common law of Australia. I must have regard to the High Court's decision that there is only one common law of Australia; I ought not find that the interpretation of s 433(3), is different in Victoria than it is in New South Wales.

368 CHH submitted that it would be further contrary to the idea of a common law of Australia if Re Enhill were to be followed in contrast to the decisions of New South Wales, South Australia and the Federal Court of Australia.

369 It is submitted by the liquidator that Farrell J's decision in Bell Hire Services should not be followed to the extent that her Honour found that that trustee's lien is a proprietary right, does not mean it automatically falls within the ambit of the statutory priority rules. The liquidator submits that the preferred approach is that taken by the court in Re Enhill, being that the trustee's right to a lien is a chose in action that forms part of the property of the trustee and the liquidator says that, accordingly, this right must be dealt with, as with any other asset, in accordance with the statutory priorities.

370 As Farrell J said in Bell Hire Services, the fact that this approach 'might result in two regimes (the trust property and property of the company) is unfortunate. But it is something which courts have had to accommodate.'[252]

371 For all these reasons, I am not bound by Re Enhill or Re Suco Gold. I should, however, follow Re Independent, unless I find that it is plainly wrong. For the reasons expressed above, I find it is not wrong, but correct.

372 On the issue of how trust property should be applied, the trust assets should be distributed pari passu amongst the trust creditors as found in Re Independent.

Whether right of indemnity is a circulating asset

373 The parties agree that for the receiver to be subject to s 433(3) of the Corporations Act, two conditions must be satisfied. First, the receiver must be in possession of property of the company. Secondly, if the receiver is in possession of property of the company, the property must be property subject to a circulating security interest. As noted above, Jacobs J's dicta observation that the priority regime applied to trust assets was not based on a finding that the trust assets were property of the company but on his interpretation of s 292 of the Companies Act 1962-1982 (SA).

374 I have already held that the trustee's right of indemnity is not property of the company for the purposes of s 433(3) of the Corporations Act. If I am wrong about that and the right of indemnity is properly categorised as property of the company, CHH argues that the trustee's right of indemnity is not subject to a circulating security interest.

375 The Commonwealth submits that the right of indemnity and accompanying lien over all the trust assets falls within the definition of a circulating security interest.

376 Section 51C of the Corporations Act provides:

In this Act:

circulating security interest means a security interest that is:

(a) a PPSA security interest, if:

(i) the security interest has attached to a circulating asset within the meaning of the Personal Property Securities Act 2009; and

(ii) the grantor (within the meaning of the Act) has title to the asset; or

377 The Commonwealth contends that right of indemnity is a circulating asset as it falls within sub-s (5) of s 340 of the Personal Property Securities Act 2009 (Cth) ('PPSA'). Section 340 is as follows:

Meaning of circulating asset

General definition

(1) For the purposes of this Act, if a grantor grants a security interest in personal property to a secured party, the personal property is a circulating asset if:

(a) the personal property is covered by subsection (5) (unless subsection (2) or (3) applies); or

(b) in any other case--the secured party has given the grantor express or implied authority for any transfer of the personal property to be made, in the ordinary course of the grantor's business, free of the security interest.

Exceptions

(2) Despite paragraph (1)(a), personal property covered by subsection (5) is not a circulating asset if:

(a) an effective registration with respect to the property, in relation to the grantor, discloses, in accordance with the regulations, that the secured party has control of the personal property; and

(b) the secured party has control of the personal property.

Note: For the meaning of control in this subsection, see section 341.

(3) Despite subsection (1), personal property covered by subsection (5) is not a circulating asset if:

(a) the personal property is goods; and

(b) the security interest is perfected by possession.

(4) For the purposes of paragraph (1)(b), personal property is not a circulating asset merely because the secured party has given express authority to transfer specific personal property, or a specific class of personal property, free of a security interest.

(4A) Despite subsection (1), if a grantor grants a security interest provided for by a transfer of an account or chattel paper, the account or chattel paper is not a circulating asset in relation to the security interest.

Current assets

(5) This subsection covers the following personal property:

(a) an account that arises from granting a right, or providing services, in the ordinary course of a business of granting rights or providing services of that kind (whether or not the account debtor is the person to whom the right is granted or the services are provided);

(b) an account that is the proceeds of inventory;

(c) an ADI account (other than a term deposit);

(d) currency;

(e) inventory;

(f) a negotiable instrument.

Example: An example of an account mentioned in paragraph (a) is an account that is a credit card receivable.

Note: For the meaning of inventory in this subsection, see section 341.

378 The Commonwealth submits that the trustee's lien is personal property and an 'account' arises from granting a right, or providing services, in the ordinary course of a business of granting rights, or providing services of that kind (whether or not the account debtor is the person to whom the right is granted or the services are provided (as provided in sub-s (5)).

379 Under s 10 of the PPSA 'account' is defined as follows:

"account" means a monetary obligation (whether or not earned by performance, and, if payable in Australia, whether or not the person who owes the money is located in Australia) that arises from:

(a) disposing of property (whether by sale, transfer, assignment, lease, licence or in any other way); or

(b) granting a right, or providing services, in the ordinary course of a business of granting rights or providing services of that kind (whether or not the account debtor is the person to whom the right is granted or the services are provided);

(c) an ADI account;

(d) chattel paper;

(e) an intermediated security;

(f) an investment instrument;

(g) a negotiable instrument.

Example: An account that is a credit card receivable is covered by paragraph (b).

380 The Commonwealth submits that the trustee is providing trustee services and a monetary obligation arises from the provision of those services. I do not accept this submission. Section 10 contemplates a person who owes the money to the service provider. The trustee's right of indemnity is an equitable right. It does not involve any money being owed for the provision of trustee services.

381 I do not accept that the trustee's right of indemnity falls under s 340(5) of the PPSA and is therefore a circulating asset.

382 The Commonwealth also submits that the interest held by the trustee is a floating charge within the meaning of s 51C of the Corporations Act. I do not agree.

383 A floating charge is not defined in the Corporations Act, save that for the purposes of the Corporations Act a floating charge includes a charge that conferred a floating security at the time of its creation but has since become a fixed or specific charge.[253] At law, a charge is fixed when it applies to a specific asset. A charge is floating when a charge is not attached to a specific asset but potentially may apply to a specific asset when the charge is crystallised.

384 A floating charge by its nature requires a chargor and a chargee. There is no chargor or chargee with a trustee incurring debts on behalf of a trust. The trustee's right of indemnity arises by way of equity.

385 Further, a floating charge only fixes upon some event of crystallisation. The trustee's right of indemnity is fixed. It attaches upon incurring of the debt to all trust assets. It does not require any act of crystallisation, as required with a floating charge.

386 The trustee's lien applies to all the trust assets without distinction, whether they be fixed or circulating. The value of the lien increases and decreases according to the liabilities incurred by the trustee. The fact that the trustee may dispose of trust assets free from the lien does not mean that the lien is not fixed.

387 The Commonwealth relies on the following statement of Brereton J in Re Independent:[254]

The trustee's lien does not attach to any particular asset, nor secures any particular liability, but is in the nature of a floating charge over all the trust assets...

388 Brereton J does not say that the lien is a floating charge, but rather is in the nature of a floating charge. This is clearly the case, as the charge's value expands and contracts with the liabilities incurred by the trustee on behalf of the trust.

389 I find that the trustee's right of indemnity is not a circulating security interest under the PPSA, nor is it a floating charge under s 51C of the Corporations Act. Accordingly, if contrary to my finding, the trustee's right of indemnity is property of the company, then I am not satisfied that it is also a circulating security interest and thus s 433(3) of the Act is not engaged.

390 I find that the priority regime in ss 433 and 556 does not apply to the distribution of the trust property.

391 Accordingly, the receivers are not justified in proceeding as set out in issue 2, and the trust funds should be paid into Court.

Issue 3 - If ss 433(3), 556 and 560 do apply

If the receivers are justified in proceeding on the basis that the priority regime in sections 433(3), 556 and 560 of the Act does apply (whether because the relevant assets are not trust assets or because section 556 applies to trust assets), then:

(a) Should the receivers proceed on the basis that they are obliged to comply with section 433(3) of the Act and apply the proceeds of the various assets constituting the Receivership Surplus in so far as they were, as at the date of the receivers' appointment, Circulating Assets of the company (save for certain deductions and less their remuneration, costs and expenses, etc) to satisfy employee entitlements before paying any remaining surplus into Court in light of the subsequent liquidation of the Company?

393 Issue 3 is predicated upon my finding that the receivers are justified in proceeding on the basis that the priority regimes in ss 433(3), 556 and 560 of the Act do apply, whether because the relevant assets are trust assets, or because s 556 applies to trust assets. As it is I have found that the receivers are not so justified.

394 If I am wrong, and the trustee's right of indemnity is property of the company and is a circulating asset, there was no dispute between the parties that the receivers should allocate the proceeds of the various assets, constituting the receivership surplus, as at the date of the receivers' appointment, to satisfy employee entitlements before paying any remaining surplus into court in light of the subsequent liquidation of the company.

395 The receivers have proposed to allocate the proceeds as set out in exhibit MJB 71 (also Exhibit MFI R1). CHH disputes the allocation of the proceeds in six classes. CHH submits that the amount in these six classes should not be included in the classification of circulating assets subject to s 433. The Commonwealth submits that one class, the loss from trading after the appointment of the receivers, should not be allocated solely to the pool of circulating assets subject to s 433. These issues are resolved in issue 3(c) below.

If the receivers are justified in proceeding on the basis that the priority regime in sections 433(3), 556 and 560 of the Act does apply (whether because the relevant assets are not trust assets or because section 556 applies to trust assets), then:

....

(b) Are the receivers justified in proceeding on the basis that their compliance with section 433(3) of the Act requires them to meet payments due to employees for leave of absence arising under section 556(1)(g) of the Act?

397 During the hearing the receivers withdrew this issue for consideration informing the court that it had fallen away.[255]

If the receivers are justified in proceeding on the basis that the priority regime in sections 433(3), 556 and 560 of the Act does apply (whether because the relevant assets are not trust assets or because section 556 applies to trust assets), then:

(c) Are the receivers justified in their characterisation of the proceeds of the various assets constituting the Receivership Surplus identified in the Originating Process as being:

(i) Circulating Assets, and thus susceptible to the operation of section 433(3) of the Act;

(ii) not Circulating Assets, and thus not susceptible to the operation of section 433(3) of the Act;

(iii) neither a Circulating Asset nor property of the Company, and thus not susceptible to the operation of section 433(3) of the Act; and

(iv) otherwise not susceptible to the operation of section 433(3) of the Act,

for the purposes of their compliance with section 433(3) of the Act?

Property subject to circulating security interest - payment of certain debts to have priority

(2) This section applies where:

(a) a receiver is appointed on behalf of the holders of any debentures of a company or registered body that are secured by a circulating security interest, or possession is taken or control is assumed, by or on behalf of the holders of any debentures of a company or registered body, of any property comprised in or subject to a circulating security interest; and

(b) at the date of the appointment or of the taking of possession or assumption of control (in this section called the relevant date):

(i) the company or registered body has not commenced to be wound up voluntarily; and

(ii) the company or registered body has not been ordered to be wound up by the Court.

(3) In the case of a company, the receiver or other person taking possession or assuming control of property of the company must pay, out of the property coming into his, her or its hands, the following debts or amounts in priority to any claim for principal or interest in respect of the debentures:

...

(c) subject to subsections (6) and (7), next, any debt or amount that in a winding up is payable in priority to other unsecured debts pursuant to paragraph 556(1)(e), (g) or (h) or section 560.

400 In this case, the receivers were appointed on behalf of the bank, which in substance held debentures[256] of the company that were secured by, inter alia, a circulating security interest within the meaning of s 433(2).

401 Therefore, subject to what is said below about the characterisation of the company's assets and some of those assets being 'circulating assets', prima facie the receivers are subject to the obligations in s 433(3).

402 Identifying 'circulating assets' as opposed to 'non-circulating assets' for the purposes of s 433 of the PPSA is governed by s 51C of the Corporations Act (set out above at paragraph 375) and ss 340 to 341A of the PPSA.

403 Sections 340 to 341A of the PPSA are extensive and the relevant parts will be cited when necessary.

404 The receivers submit that 59.55 per cent of the receivership surplus can be said to comprise circulating assets that are subject to s 433(3) of the Act. This is disputed by CCH.

405 The operation of s 433 of the Act was recently examined in Re CMI Industrial Pty Ltd (in liq), in which Mullins J relevantly held:[257]

Section 433 of the Act is a remedial provision that favours the specified priority creditors giving them a statutory entitlement to be paid from assets that would have otherwise not been available, because those assets would have become the subject of a fixed charge, when the floating charge crystallised on the appointment of the receivers.

406 According to the submissions of the Commonwealth, the history of ss 433 and 561 can be traced back to 1867 when the Preferential Payments in Bankruptcy (Amendment) Act 1897 (UK) was enacted. The history of that legislation has been essayed in various decisions of the House of Lords and Privy Council.[258]

407 The legislation was enacted to address the detrimental effect of a floating charge on a liquidator's ability to pay preferential creditors such as employees. Provision for the preferential payment of wages and salaries to employees was introduced in personal bankruptcy in 1825 and extended to the winding up of companies by the Companies Act 1883. The provisions were re-enacted in the Preferential Payments in Bankruptcy Act 1888.

408 However, the floating charge, which had been recognised in a series of cases in the 1870s, deprived the preferential creditors of much of the benefit of the 1883 and 1888 legislation. Specifically, the floating charge 'enabled the charge holder to withdraw all or most of the assets of an insolvent company from the scope of the winding up and leave the liquidator with little more than an empty shell and nothing with which to pay preferential debts.'[259] Or as Lord Nicholls put it, '[t]he debenture-holder, by virtue of his (crystallised) floating charge, scooped the pool.'[260]

409 This effect of the floating charge was controversial. For instance, in Salomon v A Salomon & Co Ltd,[261] Lord Macnaghten described the effect of a floating charge as scandalous and said:

Everybody knows that where there is a winding-up debenture-holders generally step in and sweep off everything; and a great scandal it is.

410 The 1897 Act was introduced to change the law. Section 2 provided:

In the winding up of any company under the Companies Act, 1862, and the Acts amending the same, the debts mentioned in section one of the Preferential Payments in Bankruptcy Act, 1888, shall, so far as the assets of the company available for payment of general creditors may be insufficient to meet them, have priority over the claims of holders of debentures or debenture stock under any floating charge created by such company, and shall be paid accordingly out of any property comprised in or subject to such charge.

411 Section 3 made corresponding provision for when a debenture holder appointed a receiver, or took possession, of property comprised in a floating charge, when the company was not being wound up. Section 3 provided that in such a case:

[T]he debts mentioned in section one of the said Preferential Payments Act shall be paid forthwith out of any assets coming to the hands of the receiver, or other person taking possession as aforesaid, in priority to any claim for principal or interest in respect of such debentures or debenture stock.

412 The provisions have been reproduced in subsequent enactments of companies legislation in the United Kingdom and Australia.

413 The Commonwealth submits that against that background, the purpose of the provisions is easy to understand. In Korda v Silkchime Pty Ltd,[262] La Miere J said:

The purpose and effect of s 433 and its statutory predecessors is to protect the position of preferential creditors by giving preferential claims priority over the claims of floating chargees who would have otherwise 'scooped the pool' of the chargor's assets.

414 The Commonwealth submits that the policy rationale was explained by Barwick CJ in Stein v Saywell:[263]

The policy behind s. 196 and s. 292 (4) is, I think, quite plain. A creditor who accepts a floating charge over a company's assets allows the business of the company to be carried on and the assets of the company which are subject to the floating charge to be altered, perhaps augmented, by the efforts of the company and its employees. The holder of the floating charge is not to be able to displace the priorities which the legislation accords certain debts which accrue during the carrying on of the business; amongst those priorities is certain remuneration of employees of the company.

415 Sections 196 and 292(4) were the equivalent provisions in the Companies Act 1961 (NSW) to ss 433 and 560 respectively of the current Corporations Act.

416 The receivers have classified the assets of the company into three categories: (1) circulating subject to s 433; (2) circulating not subject to s 433; and (3) non-circulating.

417 After the receivers took possession of the business of the company, they continued to trade on. The receivers have classified circulating assets that were generated on or following the appointment date as circulating assets not subject to s 433. In Re CMI, Mullins J held:[264]

The scheme of the priority, in the case of a receivership, revolves around the date of the appointment of the receivers and operates in respect of the assets that are identified on the basis that they would have been the subject of the floating charge, as created, had the charge not crystallised on that date...

The scheme under section 433 of the Act does not extend to conferring any statutory entitlement to the priority creditors in respect of the trading profit made by the receivers conducting the business of the company after the date of their appointment, as was the view expressed in the dicta in Whitton, 146.

...

The fact that a receiver is under a continuing obligation under s 433 of the Act to pay the priority creditors from the identifiable assets is not inconsistent with the date for identifying the assets being fixed at the date of the appointment of the receiver.

To the extent that it is argued that the use of the expression "out of the property coming into his, her or its hands" in s 433(3) suggests assets received after the date of appointment of the receivers, those words need to be construed in the context of when s 433 applies, as expressly set out in s 433(2)(a). The property "coming into" the hands of the receiver must be property that falls within the designation in s 433(2)(a). That property is identified by the operation of s 433(2)(a) which operates at the date of the appointment of the receivers. The statutory entitlement cannot apply unless the identified property comes into the hands of the receiver: Silkchime, [60] and [61].

The priority creditors do not have a statutory entitlement under s 433 of the Act to the receivers' inventory trading profit, as that profit was not an asset identifiable at the date of the appointment of the receivers.

418 There was no issue before me that the assets should be divided into the three classes on the criteria adopted by the receivers.

419 CHH disputes that certain assets that have been categorised by the receivers as circulating subject to s 433 are in fact non-circulating assets. CHH contends that by classifying the asset as a non-circulating asset more money is made available for the unsecured non-priority creditors and less money is available to be dealt with under s 433 (on the assumption it applies to the trust property).

420 The first of these disputed classes is cash held in an Amerind trade account with the bank in the sum of $878,341.

421 The company held ADI accounts with the bank: a trade account called Bendigo Business Cash Management Cheque Account no 1475406465; and a debtor account called Debtor Finance 3rd Party Account no 147436304. Between 20 December 2012 and 6 March 2014, the company traded with the assistance of the pre-appointment debtor finance facility, such that all of its accounts (ie book debts) (accounts) were purchased by the bank pursuant to the pre-appointment debtor finance facility. The bank maintained a separate ledge account for the purposes of the pre-appointment debtor finance facility, which allowed the company to view the funds available for drawdown under the pre-appointment debtor finance facility at any given time.

422 The pre-appointment debtor finance facility operated as set out above at paragraphs 15 to 22.

423 A maximum of 85 per cent of the approved sales ledger was available to the company for drawdown, at any given time, less funds in fact advanced by Amerind and interest on their facility.

424 The amount of the approved sales ledger was determined, in turn, by:

(a) the 'sales ledger', being the total outstanding assigned account;

(b) less any amounts 'disapproved', which became additional reserve amounts and were deducted from the drawdown account. Amounts disapproved included:

(ii) any amounts owing to a supplier where the company had a 'swap' (off-set) account with the supplier; and

(iii) 'moneys in transit', being payments advised by the company's debtors as having been paid but which had not yet been received.

425 The company's final request for 'and subsequent payment of' available drawdown amounts was on 4 March 2014.

426 As discussed earlier, on 6 March 2014 the bank informed Amerind that the debtor finance facility no longer had any available funds to be drawn and all debtor collections were to be placed towards permanent debt reduction of the facility. Also on 6 March 2014, the bank sent to Amerind a notice demanding repayment and termination of the pre-appointment facilities. On that day, and pursuant to the demand, the pre-appointment debtor finance facility, the commercial term facility and the trade finance facility were terminated by the bank.

427 On 11 March 2014, the administrators and, thereafter, the receivers were appointed.

428 On or around the appointment date, the bank sent a 'Notice of Assignment of Accounts of the Company' to all of the company's debtors.

429 Section 340 of the PPSA provides a definition of circulating asset. This section is set out above at paragraph 376.

Section 341 Meaning of control and inventory

General rules

(1) For the purposes of subsection 340(2), a secured party has control of personal property if:

(a) the secured party and the grantor have agreed in writing that the grantor:

(i) will specifically appropriate the inventory to the security interest; and

(ii) will not remove any specifically appropriated inventory without previously obtaining the specific and express authority of the secured party to do so; and

(b) the grantor's usual practice is to comply with the agreement.

(2) For the purposes of subsection 340(2), a secured party has control of the following kinds of accounts (the relevant account) in the circumstances set out in subsections (3) and (4) of this section:

(3) The secured party has control of the relevant account if:

(a) the secured party, and the person to whom the relevant account is owed, have agreed in writing that amounts paid in discharge of the relevant account must be deposited into a specified ADI account; and

(b) the usual practice is for such amounts to be so deposited; and

(c) the secured party controls the ADI account within the meaning of paragraph (1A)(d); and

(d) depositing any such amounts into the specified ADI account does not result in any person coming under a present liability to pay:

(i) the person to whom the relevant account is owed; or

(ii) if the person to whom the relevant account is owed is a body corporate - a related body corporate (within the meaning of the Corporations Act 2001).

(4) If the secured party is a transferee of the relevant account, the secured party has control of the relevant account if payment by the account debtor to the secured party would discharge the obligation of the account debtor under subsection 80(8) to the extent of the payment.

(1) For the purposes of subsection 340(2), a secured party has control of an ADI account if:

(ii) the secured party is able to direct disposition of the funds from the account without further consent by the grantor;

(iii) the secured party becomes the ADI's customer with respect to the account; and

(b) if the secured party is not the ADI--depositing an amount in the ADI account does not result in any person coming under a present liability to pay:

(ii) if the debtor is a body corporate--a related body corporate (within the meaning of the Corporations Act 2001).

Note: However, a security interest in an ADI account is only perfected by control if the secured party is the ADI (see sections 21 and 25).

(2) A secured party has control under subsection (1) even if the grantor retains the right to direct the disposition of funds from the account

432 The commencement of the PPSA regime, on 30 January 2012, brought in extensive changes to the Corporations Act to bring it into line with the new regime. The Personal Property Securities (Corporations and Other Amendments) Act 2010 (Cth) repealed Ch 2K of the Corporations Act and changed references to 'charges' in the Act to any 'security interests.' In essence, a circulating asset as described in s 340 of the PPSA was to replace the concept of a floating charge (s 339(5) PPSA).[265]

433 In substance, if a grantor grants a security interest in personal property to a secured party, the personal property is not a circulating asset if the registration of the security discloses that the secured person has control of the personal property.

434 Speaking generally, the receivers and the Commonwealth contend that although Amerind granted the bank security over the fund in the trade account with the bank, the secured party did not have control of the trade account, and thus the bank account was a circulating asset. On the other hand, CHH contends that the bank did have control of the secured property and thus it was not a circulating asset.

435 CHH contends that under the general definition, the bank account is personal property covered by sub-s (5) of s 340 and sub-s (2) applies, thus the trade account is not a circulating asset.

436 The receivers and the Commonwealth (for convenience I will henceforth just refer to the receivers' new submissions), reject this construction of 340(1).

437 The receivers submit that s 340(1)(b) applies to personal property 'in any other case' not covered by sub-s (5) that otherwise falls within s 340(1)(a). To be classified as a non-circulating asset, it is necessary for the asset to avoid being classified as a circulating asset under (a) or (b).

438 In other words, the receivers submit that personal property may also be classified as a circulating asset if s 340(1)(b) applies, even if the asset is not classified as a circulating asset under s 340(1)(a).

439 There is no dispute that the trade account was an ADI account within the meaning of s 340(5)(c) of the PPSA.

440 CHH rejects this construction and submits that it need only establish that sub-s (2) applies, where the asset falls within sub-s (5), to avoid being classified as a circulating asset. CHH submits that if the personal property is not a circulating asset by reason of s 340(1)(a), there is no requirement to ascertain whether or not it falls within the category of assets provided for in s 340(1)(b).

441 In my opinion, the receivers' interpretation of s 340 of the PPSA is correct. The object of these provisions is to treat as a circulating asset personal property that is otherwise subject to a grant of security, where the grantor retains actual control, with the consent of the security holder, over dealing with the property in the ordinary course of business.

442 Accordingly, I find that the cash at bank (Amerind trade account) is correctly classified as a circulating asset.[266]

Purchase price paid by bank****[267]

443 On 25 March 2014, the receivers caused the company to enter into a new debtor finance facility (post-appointment debtor finance facility) to facilitate the company's post-appointment cash-flow and trading activities.

444 The post-appointment debtor finance facility was on substantially the same terms, and operated in much the same way, as the pre-appointment debtor finance facility.

445 Pursuant to the debtor finance facilities (DFFs) made available by the bank to the company, both before and after the appointment date, the bank advanced funds to the company to purchase the accounts assigned to the bank under the DFFs.

446 The receivers have classified 'drawdown on the post-appointment DFF' ($1,624,158)[268] and 'reserve amounts' ($2,926,829),[269] being the amounts made available to the company after the appointment date, as circulating assets. CHH disputes that classification.

447 CHH submits that these again fall within the exception of s 340(2) of the PPSA, and should therefore not be considered to be circulating assets within the provisions of s 340 of the PPSA, and therefore ss 433, 556 or 561 of the Act do not apply to them.

448 Further, CHH submits that such assets did not come into existence until after the appointment date of the receivers and after the date that the administrators had been appointed to the company and, therefore, after the company's liquidation is deemed to have commenced.

449 It follows, CHH argues, that such personal property cannot be considered to be 'personal property' that could attract the regime of 340(1)(b) of PPSA.

450 At the time that such personal property came into existence, Amerind was in both receivership and liquidation and, in such circumstances, there can have been no consent to the transfer of the property 'within the ordinary course of the grantors [Amerind's] business' as required by s 340 of PPSA.

451 It follows, CHH submits, that in relation to the drawdown amounts and reserve amounts made available to Amerind after the appointment date, these amounts:

(b) do not fall within the category 340(1)(b) of PPSA; and

(c) should therefore not be considered to be 'circulating assets' within s 340 of PPSA; and therefore ss 433, 556 or 561 of the Act do not apply to them either.

452 First, the receivers submit that the drawdown amounts, (the sum of $1,624,158) and the reserve amounts (both the sum of $2,528,361 and the further amount of $2,948,405), made available to Amerind after the appointment date, were amounts paid to Amerind by the bank, on account of stock sold both pre-appointment and stock on hand as at the appointment date (but sold after the appointment date). These amounts were therefore, in substance, the identifiable and/or traceable proceeds of sale of stock, raw material and finished goods held by the company prior to and as at the date of appointment and, as such, deemed circulating assets under s 340(5)(b), which have been held to specifically be subject to s 433 in Re CMI.[270]

453 Secondly, the receivers submit that the time at which to characterise the relevant asset is on the appointment of receivers, not after. It is at that point at which possession or control within the s 433(2)(a) occurs, which is why the property caught by the section is limited to assets identifiable at that time. Although the concept of crystallisation is now redundant under the PPSA, the comments of Mullins J in Re CMI are apposite:[271]

Section 433 of the Act is a remedial provision that favours the specified priority creditors giving them a statutory entitlement to be paid from assets that would have otherwise not been available, because those assets would have become the subject of a fixed charge, when the floating charge crystallised on the appointment of the receivers.

The scheme of the priority, in the case of a receivership, revolves around the date of the appointment of the receivers and operates in respect of the assets that are identified on the basis that they would have been the subject of the floating charge, as created, had the charge not crystallised on that date.

454 Therefore, the receivers submit, one considers the question of the character of an asset on the appointment date, not after.

456 The receivers have characterised 'realisation of stock on hand other than through credit sales' ($1,135,232) as a circulating asset subject to s 433. CHH submits that stock realisation should not be regarded as 'circulating assets', since the relevant stock was property not on hand at the date of the receivers' appointment, for the reasons given by Mullins J in Re CMI, and on the basis of reasoning adopted by the receivers in relation to other such assets in their submissions.

457 The receivers submit that this is incorrect on the facts and refer to Mr Byrnes' evidence. Mr Byrnes deposes that contrary to CHH supplementary submissions, only a relatively small portion of the sales to Briggs Veneer and the auction proceeds from Grays relate to the sale of post-appointment stock.[273]

458 The receivers submit that the stock realisations of $1,135,232 were of stock on hand pre-appointment (and thus subject to s 433). The post-appointment purchase of stock is taken into account separately in the gross profit calculation (which is not subject to s 433). Mr Byrnes says that the gross trading profit on post-appointment stock was $230,870.

Tax refunds and sundry receipts****[274]

460 The receivers have classified 'pre-appointment tax refunds' and 'other general receipts' as circulating assets subject to s 433. CHH says that these are better regarded as not being circulating assets subject to s 433, even though they may well be currency within s 340(5)(d) of PPSA, because they are assets that were not 'on hand' as at appointment, and were at all times within the 'control' of the bank or the receivers and not Amerind within PPSA s 340(2) and 341, and were never assets that Amerind could transfer, or was authorised to transfer, free of the bank's security interest within s 340(1)(b). The receivers submit that the interest on each of the assets referred to above should be treated as not subject to s 433 (or ss 556 or 561) of the Act.[275]

461 The receivers submit that, as to the first point, this is incorrect on the facts.[276] The principle in Re CMI is that the property 'coming into' the hands of the receivers must be property that falls within the designation in s 433(2)(a) of the Corporations Act, that is, property which is an asset identifiable at the date of appointment of the receivers.[277] These assets were so identifiable at the relevant time.

462 The receivers submit that the second point is, with respect, unclear. There is no evidence that the tax refunds or sundry receipts passed through the trade account, whether before or after the appointment date.

463 The receivers say that the amounts may have been realised post-appointment, but they were identifiable at appointment and that is sufficient.

465 The receivers traded on after their appointment. They made a net loss from that activity of $1,224,677. The only interested party to raise a serious issue as to the receivers' methodology is the Commonwealth, who argues that the receivers appear to have apportioned the 'loss' incurred by the trading-on of the company's business by the receivers entirely against the proceeds of circulating assets to which s 433 applies, whereas the Commonwealth submits that the loss should be allocated against the non-circulating assets.

466 The Commonwealth submits that it is difficult to see why, if the 'Gross Profits' from trading are not part of the fund to which s 433 applies, the losses from the same trading should be cast upon that fund. The burden should lie with the benefit.

467 The Commonwealth submits that conclusion is reinforced when regard is had to other benefits of the decision to trade the business on. One of the receivers, Mr Byrnes, explains that:[279]

As a result of our trading activities, the receivers have realised Stock and the PP&E at higher values than I believe would have been achieved had the receivers not traded the business. The receivers have also likely generated a gross profit from trading.

468 The Commonwealth submits that property, plant and equipment are non-circulating assets. However, because the continued trading meant that higher values were achieved for those assets, it is difficult to see why those assets should not bear if not all, then at least a greater part of the 'trading loss'. Again, the burden should lie with the benefit.

469 The Commonwealth submits that it also seems logical to conclude that the continued trading of the business also assisted the collection of receipts from debtors. Earlier versions of 'MJB-69' included an amount of almost $21 million for 'Debtor receipts (received directly by the bank).' (For reasons that are unexplained, these amounts have been omitted from 'MJB-69'). That is another reason for the trading losses to be allocated elsewhere than to the fund to which s 433 applies.

470 In support of that argument, the Commonwealth points to the following matters:

(a) there is inconsistent treatment, in the receivers' methodology, of the gross profit from trading, which resulted in assets to which s 433 do not apply, and that some or all of the net 'trading loss' should be allocated to it;

(b) by reference to matters stated in the first Byrnes affidavit at [39], property, plant and equipment are non-circulating assets, because the continued trading meant that higher values were achieved for those assets; it is difficult to see why those assets should not bear if not all, then at least a greater part of the 'trading loss'; and

(c) as it seems logical to conclude that the continued trading of the business also assisted the collection of receipts from debtors received directly by the bank (of almost $21 million), that is another reason for the trading losses to be allocated elsewhere than the fund to which s 433 applies.

471 The Commonwealth says that it is important, when considering complaints about the receivership surplus table, to keep in mind two fundamental facts. The first is that there is currently a maximum gross receivership surplus of $1,619,018[280] - those funds are held in a bank account by the receivers, and no re-allocation of amounts will alter that amount - apart from increases in the receivers' costs and just estimate of costs, the only scope to alter outcomes lies in contesting the application of s 433(3) and the allocation of costs, expenses and remuneration to certain asset pools; and the second is that the 'trading loss' is not a true loss - it is only a loss as a result of the separation out of the assets realised into different circulating pools (for s 433 purposes) and the allocation of costs, expenses and remuneration (by a mixture of specific and pro rata allocations) to the amounts so realised.

472 The Commonwealth's overarching argument is that the trading loss, which results from the attribution to the realisation of circulating assets, which are not subject to s 433 of $1,224,677, should not be allocated to the circulating assets, which are subject to s 433, but should be treated in another way.

473 The receivers rely on the outline of submissions in explaining the methodology for apportioning the loss.[281]

474 In the event CHH's primary contention (that s 433(3) does not apply) is rejected, CHH broadly agrees with the receivers' contentions in respect of the methodology for apportioning the loss.[282]

475 The receivers submit that the trading 'loss' itself results from the attribution of costs, expenses and remuneration referable to the circulating assets not subject to s 433. That pool (including the gross trading profit) has been exhausted by that attribution and resulted in the notional 'loss' to this pool. The reference to 'loss' merely denotes that the pool has been exhausted by the initial allocation. The receivers applied that notional loss to the circulating assets subject to the s 433 column, because those circulating assets, such as stock and debtors, were benefited by the continued trading of the business, and the receivers say the benefit would not have been generated otherwise.

476 The receivers consider that the benefit to non-circulating assets achieved (specifically any increased value of the plant property and equipment from ongoing trading) to be minimal.

477 The Commonwealth's third complaint seems to be that the 'trading loss' should be applied to the debtor receipts received by the bank. Those were debts assigned to and owned by the bank. They were not property of the company. Their collection was significantly assisted by the continued trading of the business. It was the bank's receipt of those amounts, coupled with the bank's realisation of certain property of guarantors, which allowed the bank to be paid out, and has resulted in a surplus being generated. After the bank was repaid, further amounts then became available as part of the surplus - the net benefit generated by the bank's receipt of those funds is reflected in the 'reserve amount on the pre- and post-appointment DFF' of $5,476,765, which amount flowed through from the collection of assigned debts once the bank was paid out. Thus, the benefit of trading on debtor collections is already reflected in the reserve amount, which is a circulating asset subject to s 433.

478 Precisely what the Commonwealth suggests ought be altered is not explained and it is noteworthy that the liquidator raises no such issues.

479 It is convenient to set out an extract of Mr Byrnes' fifth affidavit as follows:[283]

I note that the CDE has raised issues, set out in the CDE Submissions, about the allocation of the Receivers' costs and expenses to the various pools of assets comprising the Receivership Surplus. These issues had not been raised with us previously, either by the Liquidator of the Company or CDE.

Specifically, the CDE has raised concerns about the line item referred to as "reallocation of net loss from trading", which is the third last line item in the Updated Receivership Surplus Table. The Receivers initially applied, on a pro-rata basis, our remuneration, costs and expenses associated with the trading on of the Company's business against the two pools of asset realisations which the Receivers consider to be circulating assets of the Company. The first pool is made up of realisations of assets which were on hand as at the date of the Receivers' appointment, to which the Receivers consider s 433 of the Act applies. The second pool comprises assets generated and realised after our appointment, to which the Receivers do not consider s 433 of the Act applies.

In calculating the pro-rata allocation of trading costs (which are under the heading "Costs and expenses of trading" in the table) against these two pools, the Receivers determined the total gross circulating asset realisations generated from trading the Company's business and the proportion of each pool. 63.75% of the Receivers' gross circulating asset realisations from trading are those which the Receivers consider are subject to s 433 and 36.25% are gross circulating asset realisations from trading which the Receivers do not consider are subject to s 433, as they relate to stock purchased by the Receivers post-appointment. Hence, the Receivers initially allocated 36.25% of their trading costs against the latter pool.

When a pro-rata amount of the costs and expenses of trading (36.25%) and a pro-rata amount of the Receivers' general costs and expenses (as set out in Table 1 at paragraph 79 of the First Byrnes Affidavit) were allocated to the circulating assets which the Receivers consider are not subject to section 433 of the Act, those assets were exhausted. The shortfall has been re-allocated to the remaining circulating assets, which we consider are subject to section 433 of the Act. It is this shortfall resulting from the initial allocation of costs and expenses against all circulating assets which is referred to as the "re-allocation of net loss from trading" in the Updated Receivership Surplus Table.

I wish to explain further why the Receivers' remuneration, costs and expenses associated with the trading on of the Company's business have been allocated in this way. In short, the Receivers' decision to trade the Company's business has increased the realisable value of the Company's circulating assets on hand at appointment, being the assets which we consider are subject to section 433 of the Act. However, in this instance I consider that the decision to trade on the Company's business had little impact on the realisable value of the Company's "non-circulating assets", including PP&E.

Based on my experience, the asset classes that benefit most from the continued trading of a company's business post-appointment are debtors and stock on hand. In the case of the Company, I consider that the amount realised for the "Reserve Amount" and stock on hand as at the Appointment Date (SOH) were increased through the Receivers' decision to trade on the Company's business. I deal with each of these asset classes below.

Reserve Amount

The Reserve Amount is described at paragraph 15 of the First Byrnes Affidavit. It is the amount of the purchase price retained or "held back" by the Bank under the Pre- and Post-Appointment Debtor Finance Facilities. The Reserve Amount was only payable to the Company when, amongst other things, each Account had been paid to the Bank in full. The quantum of the Reserve Amount available to the Company as its asset is therefore inextricably linked to the successful collection of the Company's debtors. The net benefit of collecting the debtors (being those existing at the Appointment Date and those relating to the sale of SOH) is therefore already reflected in the column of the Updated Receivership Surplus Table which sets out the assets that the Receivers consider are subject to section 433 of the Act. As set out in the Updated Receivership Surplus Table, the Receivers have realised $5,476,765 for the Reserve Amount.

In my experience and in the majority of insolvency appointments (including receiverships) the realisation of pre-appointment debtors is improved when a business continues to trade post-appointment. This is because trading on a company's business enables minimal disruption to customers through continuity of supply, and this in turn mitigates claims by customers against amounts owing as at the date of appointment. Further, the trading on of a company's business often facilitates the retention of the company's accounts receivable staff who are intimately familiar with a business' debtors. The existing accounts receivable staff, operating on a business as usual basis, and due to their relationships with customers, generally have greater success in collecting debts than receivers or a third party agency retained to collect debts on behalf of the company.

In my experience and broadly speaking, ceasing to trade a company's business has two potential negative impacts on the realisation of debtors: first, if a business ceases to trade upon appointment, debtors may delay or avoid making payment of outstanding amounts, citing claims for loss of business, disruption to supply, costs to resource to alternative suppliers, and potentially other claims that deplete the amounts owing to the business. Particularly in circumstances where there are no written contracts between the company and its customers, this situation can lead to disputes, non-payment, legal action, and similar distractions to the receivership that result in impairment to the outstanding debts. Second, such disputes and related issues can increase the time and costs incurred by the appointee and their staff in attempting to negotiate and recover these outstanding debts.

In the case of the Company, I consider that the trading on of the business did benefit the collection of its pre-appointment debtors. Initially, the collection of the debtors contributed to the secured debt being repaid to the Bank. Once that had occurred, it resulted in the realisation of the Reserve Amount as an asset of the Company. Had the Receivers not continued to trade the Company's business post-appointment, I consider that the Reserve Amount realised would have been significantly less and that potentially there would have been no surplus at all realised from the collection of pre-appointment debtors reflected in the Reserve Amount. Such an outcome would have negatively impacted the net realisations available from circulating assets which the Receivers consider are subject to section 433 of the Act.

Stock on hand

...

Our decision to continue to trade the Company's business following our appointment allowed for a portion of SOH, including raw materials and WIP, to be converted and sold through ordinary channels at better margins, rather than sold in a distressed situation in their current form (such as at a fire sale or auction).

SOH not sold during the Post-Appointment Trading Period was sold during the Wind-Down Trading Period, or by the Receivers' agents, Grays, at the conclusion of that period. As detailed in the First Byrnes Affidavit, the sale of SOH at auction achieved an average realisation of 12.24 cents in the dollar. By way of example only, if all SOH had been sold at auction (following an immediate shut down of the Company's business on appointment) and achieved a similar outcome, total realisations of SOH would have been approximately $1.3 million. It should be noted that this is an estimate of the gross realisations from the sale of SOH before allowing for the costs of realisation.

Appropriate apportionment of trading costs

Accordingly, the main effect of the Receivers' decision to trade on the Company's business is primarily reflected in the increased amount received by the Company on account of the Reserve Amount and the SOH, such realisations being reflected in the column subject to section 433, and had minimal effect on the amount realised for the Company's PP&E and other non-circulating assets. For these reasons, I consider that the Receivers' remuneration, costs and expenses have been appropriately allocated, including the reallocation of the amount referred to as the "net loss from trading" in the Updated Receivership Surplus Table to the realisations achieved from circulating assets which the Receivers consider are subject to section 433 of the Act.

480 I accept the evidence of Mr Byrnes. I am not satisfied that the allocation made by the receiver of the net loss from trading is not reasonable or appropriate in the circumstances.

Is the receivers' methodology for apportioning their remuneration, costs and expenses, etc. across the relevant asset pools reasonable and appropriate and thus justified?

483 The receivers referred to Waters v Widdows,[285] which held that the receiver was entitled to deduct their remuneration, costs and expenses in priority over the payment of the employee entitlements payable in the context of s 331 of the Companies (Victoria) Code. As Nicholson J noted, the authorities examined by him went back at least 75 years in respect of similarly worded sections of legislation governing employee entitlements in both Australia and England. Those authorities supported his Honour's conclusion that the receiver's costs could be paid in priority to the employee entitlements.[286]

484 Nicholson J also considered how the receiver's costs, expenses and remuneration were to be allocated across the circulating and non-circulating asset pools. His Honour noted that the correct approach was to apply the costs to the relevant fund realised by the costs expended and, in the case of expenses and charges that could not be apportioned, to allocate them pro rata between the funds. Nicholson J accepted the evidence and estimates provided by the receiver as to the work performed and found that the costs should be apportioned in the manner envisaged by the receiver.[287]

485 The receivers in the present case seek a direction that they are justified in proceeding on the basis that the methodology employed by them in apportioning their remuneration, costs and expenses (including their just estimate of their remaining future remuneration, costs and expenses) across the relevant asset pools is reasonable and appropriate having regard to the nature of the assets realised and the allocation process undertaken by the receivers consequent upon the characterisation of the relevant assets as being circulating assets or otherwise.

486 No party raised any issue about the methodology applied by the receivers.

487 If s 433(3) of the Act applies, the receivers are justified in apportioning their remuneration, costs and expenses etc, across the relevant asset pools as they have done in exhibit R1.

488 Issue 4: In the alternative to questions 2 and 3, if the receivers are justified in proceeding on the basis that the priority regime in ss 433(3), 556 and 560 of the Act does not apply (whether because (i) the receiverships surplus is trust property to which s 556 does not apply, or (ii) the receivers are not bound to comply with s 433(3) in light of the subsequent liquidation of the company), should the receivers proceed on the basis that they ought simply pay the receivership surplus (less their remuneration, costs and expenses, etc) into court to be subject to the competing claims of the various interested parties?

489 The receivers submit that once the receivership has progressed to the point where a receiver has paid, or retains sufficient funds to pay, all debts for which they are personally liable and have paid out the debt owed to the appointor, any surplus assets held by the receivers are held on trust for any subsequent party and - to the extent of available assets - the debtor company. They submit that if there is any doubt about the entitlement, priority or quantum of the claims of the subsequent mortgagees or charges, the receivers should set aside the surplus funds as trust moneys in an interest-bearing account until the entitlements have been determined or, alternatively, pay the funds into court. The receivers refer to and rely on Expo International Pty Ltd v Chant.[288]

490 The liquidator agrees that once the receivers have completed their duties under the Corporations Act and secured their own costs and expenses they should retire and pay any surplus funds into court, pending determination of the asserted conflicting interests in the surplus.

491 The liquidator submits that the claims made by other parties to the surplus funds, which may include CHH and Amrimear Pty Ltd (in liquidation), Naja David and Kathryn David should then be dealt with by the court under the usual funds in court procedure.

492 The liquidator intends to make submissions in that later proceeding that all surplus funds should come into the liquidation and be distributed in the usual manner pursuant to s 566 of the Corporations Act.

493 I have found that the assets of the company are trust assets. The receivers may be able to claim costs out of the trust assets on the Universal Distributors basis, or on the basis that the receivers have assumed the position of trustee, or otherwise. I did not hear any argument on this issue. Although I note that the parties did not oppose the receivers be paid their reasonable costs and expenses, subject to s 425(8) of the Corporations Act. I propose to not give a direction on this issue until I have heard submissions by the parties.

494 Accordingly, I find that the receivers are justified in proceeding on the basis that they ought to pay the receivership surplus into court to be subject to the competing claims of the various interested parties after the issue of costs is resolved. I reserve the issue of whether the receivers are justified in retaining remuneration, costs and expenses out of the trust moneys.

As to how receivers should approach the security interest claimed by Alpine over part of the Receivership Surplus:

(a) Are the receivers justified in proceeding on the basis that the security interest claimed by Alpine vested in the company under s 588FL of the Corporations Act such that any amount of proceeds referable to the claimed security interest is 'property of the company' for the purposes of s 433(3), it being the case that:

(i) if the proceeds are 'property of the company', they will be susceptible to the operation of s 433(3) and will form part of the circulating assets which the receivers may, subject to the answers to questions 2, 3 and 4 above, be required to apply to employee entitlements before paying any remaining amount into Court;

(ii) if the proceeds are not 'property of the company', they will not be susceptible to the operation of s 433(3) and will form part of the amount paid into Court;

(b) If the proceeds are not 'property of the company', how should the receivers approach the value of Alpine's claim, both generally and in light of the tracing/identification issues detailed in [127] of the First Byrnes Affidavit?

497 Alpine is a manufacturer and supplier of medium-density fibreboard, which was supplied to Amerind. Alpine had an agreement with Amerind that Alpine would accept orders from Amerind that provided that title to the goods would not pass to Amerind until all amounts owing to Alpine by Amerind for the product delivered to Amerind had been paid.

498 The original agreement provided that a contract would be deemed to have been made upon receipt by Alpine of an oral or written order from Amerind for product and acceptance of that order by Alpine.

499 On 16 May 2012, Amerind agreed to a variation to the original agreement (to reflect, inter alia, the introduction of the PPSA). The agreement was sent by Alpine with a covering letter, which stated that '[a]ll orders placed by your business on and from your receipt of this letter will be governed by the terms as amended by this letter.' The amended terms, amended the original terms to insert inter alia a retention of title clause.

500 Amerind agreed that Alpine had a security interest in the product delivered, attaching at the time Amerind took possession of the product. The parties agreed that those terms constituted a security agreement for the purposes of the PPSA.

501 Alpine registered its amended agreement under PPSA on 10 March 2014, the day before the receivers were appointed by the bank.

502 Section 588FL(2) of the Corporations Act relevantly provides that, when an administrator has been appointed, any PPSA security interest which was registered after the latest of:

(a) six months before the 'critical time' (being the date the administrators were appointed); or

(b) 20 business days 'after the security agreement that gave rise to the security interest came into force'; or

(c) such later time as the court may fix under s 588FM,

503 The relevant 'critical time' here is the day the receivers were appointed, the appointment date.

504 Alpine claims that it holds security in the goods the subject of orders made by Amerind and accepted by Alpine in the period of 20 days prior to the registration of its security with the PPSA.

505 Here, the issue is when Alpine's security interest came into force. Alpine contends that the security interest came into force every time an order was placed and remained in force until all money owing by Amerind was paid to Alpine. Thus, Alpine submits that there were multiple security agreements, each coming into force when an order agreement was made.

506 The receivers and the liquidator contend that the security agreement came into force on 16 May 2012, when the parties signed the amendment to the original agreement made in 2003, and only then.

507 'Security agreement' is defined in the PPSA under s 10 as: (a) an agreement or act by which a security interest is created, arises or is provided for; or (b) writing evidencing such an agreement or act.

508 The dispute is about the construction of Alpine's credit application. If, as Alpine submits, multiple security agreements that gave rise to a security interest were made upon each order being accepted, then Alpine claims to have held security over the goods supplied by Alpine and on sold by the receivers, and that Alpine is therefore entitled the proceeds of sale of those goods, up to the value of the contractual sale price.

509 Within the 20 business days before 10 March 2014 (being the date Alpine registered its security interest), Alpine accepted and fulfilled orders from Amerind by supplying goods to Amerind. Alpine submits that these orders constituted security agreements and that security interests that arose within this 20-day period did not vest in Amerind on the appointment of administrators.

510 Alpine accepts that only the orders accepted within the 20-day period would be secured; no equivalent security interest is asserted in respect of goods supplied by Alpine to Amerind in the period prior to 10 February 2014.

511 Alpine accepts that the relevant orders are for the value of $159,161.11.

512 The receivers submit that only one security agreement came into force and that was in 2012. As it was not registered at least six months before the critical time (the appointment date), the security has vested in Amerind and is extinguished. In which case Alpine would be an unsecured creditor for the amount of $159,161.11, and any other moneys owed to Alpine that are not claimed to be secured.

513 The receivers submit that the agreements in question are analogous with those in Central Cleaning Supplies (Australia) Pty Ltd v Elkerton.[290] In that case, a supplier of cleaning equipment (Central) supplied equipment to a customer (Swan) between September 2009 and May 2013, and for each supply of equipment, the supplier invoiced the customer and each invoice included a retention of title clause. The customer went into liquidation in May 2013 and the supplier sought to enforce its retention of title clause in the invoices and reclaim the equipment the subject of unpaid invoices. The supplier had not registered on the PPSR, and thus, had not perfected its security interests. The supplier's claim to recover the equipment could only succeed if its interest in the relevant equipment was covered by the transitional provisions of the PPSA, which were designed to protect security interests that had been created, or provided for, before 30 January 2012. The question was whether the supplier's security interest in the equipment supplied after 30 January 2012 was 'provided for' by an arrangement entered into between the parties for the supply of equipment on 30-day credit.

514 The Court of Appeal held that the terms on which the supplier agreed to provide credit to the customer included provision for the retention of title clause as a standard term of each future supply of equipment. In that case, the credit application submitted by the customer on 3 September 2009 relevantly provided as follows:[291]

The supply of goods by the seller is governed by the Seller's Standard Terms and Conditions as in force from time to time. The Standard Terms and Conditions override any terms and conditions of purchase used by the Customer.

515 Central subsequently supplied cleaning equipment to Swan, each transaction being covered by a specific invoice. Each of the invoices included the same retention of title clause. The first invoice before the court was dated 4 September 2009, the day after the credit application was signed. The procedure for purchasing equipment was: (i) Swan ordered equipment by sending a purchase order to Central, specifying the equipment required; (ii) Central delivered the equipment within approximately four weeks of receiving the purchase order; (iii) after delivery, Central would render an invoice to Swan.

516 Although the credit application referred to Central's standard terms and conditions, there was no evidence as to what those terms were at the time of the credit application. Instead, Central relied on the retention of title clause on the separate invoices issued after the credit application, which used the words 'goods the subject of this sale.'[292]

517 The Court noted that Central would only be able to enforce the retention of title clause with respect to an item of equipment supplied after the commencement date of the PPSA if Swan's credit application was (or gave rise to) a 'transitional security agreement', that is, an agreement made before the commencement date which 'provided for the granting of' the security interest in that equipment when it was later supplied.[293]

518 The Court considered the meaning of s 308 of the PPSA[294] (which relates to transitional security interests), but includes the words 'a security agreement in force before the commencement time.' It held that 'security agreement' was not defined by reference to a transaction but is defined as 'an agreement' or 'an act' by which a security interest 'is created, arises or is provided for.'

519 The Court noted references in the extrinsic material relating to the PPSA to the mechanism of a contract expressly providing for the ongoing supply of goods being a security agreement which 'provides for the granting of [the security interests].'[295] Ultimately, the Court held that the credit application was simply an application by which Swan signified its intention to create legal relations with Central on those terms, but until the Swan's offer was accepted, no such relations would come into existence.[296] A contract came into force when Central accepted the offer by making its first supply of goods, after the credit application was made.[297]

On this analysis, the first supply of equipment operated to establish a supply agreement between Central and Swan. In accordance with the express terms of the credit application, the agreement governed all future supplies of equipment.

Importantly for present purposes, that first supply of equipment was a supply on Central's "Standard Terms and Conditions", that is, the conditions set out in the invoice including the ROT clause. The evidence showed, incontrovertibly, that those were Central's standard terms. They appeared in identical terms on every supply invoice before the court.

It is immaterial that the credit application form did not set out Central's "Standard Terms and Conditions". On ordinary principles, Swan's signing of the credit application bound it to accept those terms and conditions for all future supplies of equipment. Clause 2 of the "Credit Application Terms" (set out above) could not have been clearer in that regard.

...

It is clear that, in its terms, each ROT clause had application only to the invoiced goods the subject of the particular supply. The result of the contractual analysis, however, is that:

• Swan's application for credit included an undertaking to be bound, in respect of every supply of equipment, by Central's standard terms of supply;

• the ROT clause was in existence, as a standard term of supply, at the date on which the credit agreement became binding on Swan, being the date on which Swan received the first invoice for equipment supplied; and

• under that agreement, Swan accepted that all future supplies of equipment would be governed by that standard term (which would be expressed in each case to relate to the particular equipment supplied).

On this view, an agreement came into force - at the time of the first supply of equipment - which did "provide for the grant of" a security interest in relation to all future supplies of equipment. That agreement was a "transitional security agreement", and each of the security interests granted in respect of equipment supplied subsequently was a "transitional security interest". Central is therefore able to enforce the ROT clauses notwithstanding the absence of registration.

521 The Court held that the security agreement was not defined by each sale, but rather by the one agreement establishing the terms which applied to subsequent separate sales. In other words, the security agreement was created once, not every time a sale was made under the umbrella of the security agreement.

522 Therefore, on this analysis, the agreement which 'gave rise' to the security interest claimed by Alpine 'came into force' when Amerind accepted, and Alpine commenced supply on the basis that all future supplies would be subject to the retention of title terms in the amended terms.

523 Elkerton stands for the proposition that an agreement which imposes retention of title terms in respect of future supplies is an agreement by which a security interest is provided for irrespective of individual dealings with orders and invoices. Here, the amended terms imposed the retention of title terms directly and immediately following their acceptance by Amerind upon all future supplies. They are the relevant 'security agreement' and are the 'source'[299] of the claimed security interest.

524 It is submitted by the receivers and the liquidator that a further reason why this analysis should prevail is the decision of Cameron J in Re Carpenter International Pty Ltd.[300] Cameron J was required to consider the expression 'the security agreement that gave rise to the security interest' in s 588FL, where: (i) a security interest provided for in a written sale agreement signed by the vendor was later assigned to the vendor agent when the vendor agent paid the vendor the purchase price owed by the buyer (which later went into administration); and (ii) the assignee registered outside 20 business days of the original written agreement. Her Honour held that the original written sale contract was the 'security agreement which gave rise to the security interest', not the subsequent act of the vendor agent's payment/assignment.

525 Alpine submits that there is a key difference between its agreement and that in Elkerton. Alpine's agreement with Amerind provided for a separate agreement dealing with security each time an order was made and accepted, as is provided for in clause 3.1 of the original terms, with its stipulation that, 'a contract will be deemed to have been made upon receipt by Alpine of an oral or written order from a customer ... for Product and acceptance of that order by Alpine ...', which 'deems' a contract to be made upon Alpine's acceptance of an order.

526 It is further submitted that Elkerton is of little assistance, as in that case the enquiry was directed to whether the relevant security agreement 'provided for' a security interest, whereas s 588FL of the Corporations Act is concerned with a security agreement that 'gave rise' to the security interest.

527 Section 588FL of the Corporations Act refers to when a security agreement 'came into force', not when a security agreement was 'entered into' or 'executed'. The operation of clause 3.1, which is not addressed in the plaintiffs' outline, is key to resolving the question of the date upon which Alpine's security agreement(s) 'came into force'. In particular, the effect of clause 3.1 is that a security agreement that gave rise to a security interest 'came into force' each time Alpine accepted an order from Amerind in the 20-day period; or alternatively, a discrete security agreement incorporating the original terms (as amended) came into force each time Alpine accepted an order from Amerind in the 20-day period.

528 Conversely, the liquidator submits that Alpine's retention of title clause (constituted by clause 7.1 of the amended terms) was in the form of an 'all amounts' owing clause, rather than as in Elkerton, a clause which only provided for a security interest to exist over the goods supplied under each invoice until the amount the subject of that invoice was paid. In contrast to Elkerton, where a separate security interest came into existence with each invoice, in the present case, the liquidator submits that the security interest would come into existence, at latest, with the first supply of goods by Alpine pursuant to the amended terms of the agreement, and that security interest will have continued to exist until all amounts ever owing under all invoices were paid. Accordingly, the amount secured by the security interest might vary upward and downward as Amerind made payments to Alpine.

529 I accept the receivers' and liquidator's submissions. I find that the security interest was created in about May 2012 and, therefore, needed to have been registered at least six months before the critical date under s 588FL(2)(b)(i).

530 The receivers are not justified in treating Alpine as a secured creditor as the security interest of Alpine vested under s 588FL of the Corporations Act and accordingly the proceeds should form part of the amount (the receivership surplus) to be paid into Court.

531 Issue 6: As a matter of procedure, should the court receive certain evidence in the form of summaries pursuant to s 50 of the Evidence Act 2008 (Vic), given the oppressive volume and complexity of the underlying material?[301]

532 The receivers seek a direction pursuant to s 50(1) of the Evidence Act 2008 (Vic) that they may adduce the evidence of the contents of the source documents in the form of the summaries[302] set out in spreadsheets which are as follows:

(a) exhibits 'MJB-22', 'MJB-26', 'MJB-32' and Table 1 in paragraph 79 of the First Byrnes Affidavit;

(b) exhibit 'MJB-48' to the Second Byrnes Affidavit;

(c) exhibit 'MJB-58' to the Third Byrnes Affidavit;

(d) exhibit 'MJB-69' to the Fourth Byrnes Affidavit; and

(e) exhibit 'ACB-4' to the Second Borland Affidavit.

533 Section 50 of the Evidence Act 2008 (Vic) provides as follows:

Proof of voluminous or complex documents

(1) The court may, on the application of a party, direct that the party may adduce evidence of the contents of 2 or more documents in question in the form of a summary if the court is satisfied that it would not otherwise be possible conveniently to examine the evidence because of the volume or complexity of the documents in question.

(2) The court may only make such a direction if the party seeking to adduce the evidence the form of a summary has¾

(1) served on each other party a copy of the summary that discloses the name and address of the person who prepared the summary; and

(2) given each other party a reasonable opportunity to examine or copy the documents in question.

534 In Thackray v Gunns Plantations Ltd,[303] Davies J held that s 50 is intended to achieve the purpose of permitting summary evidence if the court is satisfied of two matters:

(1) it would not otherwise be possible conveniently to examine the evidence because of the volume or complexity of the documents; and

(2) a reasonable opportunity had been given to any other party to the litigation to examine or copy the documents in question.

535 In compliance with the above requirements, the receivers sent written notice of their use of summaries to the interested parties setting out the volume and complexity of the source documents, the author of the summary documents, provided copies of key source documents, and provided a means for examining the source documents.

536 CHH expressly states that it has no objection to such a direction in respect of the summary documents[304] and no other party has made any objection in its submissions.

537 I am satisfied that s 50 is enlivened, and in my discretion, I will make the direction sought.

538 Issue 7: What is the appropriate apportionment of the receivers' remuneration, costs and expenses of the proceeding?

539 It is expected that the receivers' costs of the proceeding would be encompassed in the amount set aside for their just estimate of future remuneration, costs and expenses. The same process of apportionment pro rata in respect of the remuneration costs and expenses of the receivership proper would apply.

540 No party has suggested such an order should not be made in the receivers' favour.

541 In the event that s 433 is not enlivened, as I have so found, I did not hear submissions on this issue. I will defer giving a direction until I have heard further submissions.

542 I will hear the issue at a date to be fixed after appropriate directions are given to prepare the issue for trial.

543 I direct that the plaintiffs bring in minutes of orders. I will hear the parties on costs and the other issues I have left open for submissions, on a date to be fixed.

[2] It did this by automatically uploading a schedule of all unpaid invoices raised by Amerind onto the bank's debtor finance online portal.

[3] Orders of Efthim AsJ dated 2 April 2014.

[4] Re Interwest Hotels Pty Ltd (in liq) (1993) 12 ACSR 78, 84-85 (Eames J).

[5] Bastion v Gideon Investments Pty Ltd (in liq) [2000] NSWSC 939; (2000) 35 ACSR 466, 476 [51] (Austin J).

[6] In the Matter of ICS Real Estate Pty Ltd (in liquidation) & Anor [2014] NSWSC 479, [40] (Brereton J).

[7] Re National Personnel Pty Ltd (in liq) [2012] VSC 508, [34] (Robson J).

[8] In the matter of Rolcross Pty Ltd (in liquidation) [2012] NSWSC 846, [6] (Black J).

[9] Graf Holdings & Parer Holdings [1999] NSWSC 217, [4] (Austin J).

[10] Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344; (2008) 74 NSWLR 550, 552 [9] (Brereton J).

[11] A Pty Ltd v Jonco Holdings Pty Ltd [2000] NSWSC 147; (2000) 33 ACSR 691, 712 [79] (Santow J).

[12] Graf Holdings & Parer Holdings [1999] NSWSC 217, [4] (Austin J).

[13] Further Amended Originating Process, [9C]; Issue 2.

[14] [1983] VicRp 52; [1983] 1 VR 561 ('Re Enhill').

[15] (1983) 33 SASR 99 ('Re Suco Gold').

[16] [2016] NSWSC 106; (2016) 305 FLR 222 ('Re Independent').

[17] Re Independent [2016] NSWSC 106; (2016) 305 FLR 222, 230−2 [23]−[25].

[18] Re Kayfords Ltd [1975] 1 WLR 279; B.H. McPherson, Law of Company Liquidation (4th ed), pp 305-6; Re Staff Benefits Pty Ltd [1979] 1 NSWLR 207; 4 ACLR 54; B.H McPherson, "The Insolvent Trading Trust", in Finn (ed) Essays in Equity (1985), p 154; J D Heydon & M J Leeming, Jacobs' Law of Trusts in Australia, 7th ed, [2115]; _Bruton Holdings Pty Limited (in liq) v Commissioner of T_axation [2011] FCAFC 79; (2011) 193 FCR 442, [27]; H.A.J. Ford, Principles of the Law of Trusts [14.7310].

[19] D R Williams, "Winding Up Trading Trusts: Rights of Creditors and Beneficiaries" (1983) 57 ALJ 273, 276-7.

[20] J D Heydon & MJ Leeming, Jacobs' Law of Trusts in Australia, 7th ed, [2115].

[21] B H McPherson, Law of Company Liquidation (4th ed), pp 305-6; B H McPherson, "The Insolvent Trading Trust", in Finn (ed) Essays in Equity (1985), p 154.

[22] R P Meagher, "Insolvency of Trustees", (1979) 53 ALJ 648, 653 (14).

[23] Stott v Milne (1884) 25 Ch D 710, 715; Dowse v Gorton [1891] AC 190; Jeffray v Webster (1895) 17 ALT 72; Octavo Investments v Knight, 367.

[24] Re Johnson (1880) 15 Ch D 548; Re Evans (1887) 34 Ch D 597, 601; _Jennings v Mat_her [1901] 1 QB 108, 113-4; Re British Power Traction & Lighting Co Ltd [1910] 2 Ch 470.

[25] Re Johnson (1880) 15 Ch D 548, 552; Re Evans; Re Frith [1902] 1 Ch 342, 346; Re British Power Traction & Lighting Co Ltd [1910] 2 Ch 470.

[26] J D Heydon & M J Leeming, Jacobs' Law of Trusts in Australia, 7th ed, [2115]; referring to Keefe v Law Society of New South Wales (1998) 44 NSWLR 451 and Re Sutherland and French Caledonia Travel Service Pty Ltd (in liq) [2003] NSWSC 1008; (2003) 59 NSWLR 361.

[27] Transcript of hearing, Re Amerind Pty Ltd (receivers and managers apptd) (in liq), 27 September 2016, T173.

[28] Transcript of hearing, Re Amerind Pty Ltd (receivers and managers apptd) (in liq), 28 September 2016, T325, L11 - T326, L20.

[29] Section 9 of the Corporations Act provides that: 'debenture of a body means a chose in action that includes an undertaking by the body to repay as a debt money deposited with or lent to the body. The chose in action may (but need not) include a security interest over property of the body to secure repayment of the money. However, a debenture does not include: (a) an undertaking to repay money deposited with or lent to the body by a person if: (i) the person deposits or lends the money in the ordinary course of a business carried on by the person; and (ii) the body receives the money in the ordinary course of carrying on a business that neither comprises nor forms part of a business of borrowing money and providing finance ...'

[30] Referring to the definition of 'debenture' in s 9 of the Corporations Act.

[31] Levy v Abercorris Slate & Slab Co (1888) 37 Ch D 260, 264; see also Handevel Pty Ltd v Comptroller of Stamps (Vic) [1985] HCA 73; (1985) 157 CLR 177, 195-6.

[32] Chapeau to s 9 of the Corporations Act. The Commonwealth also refers to In the Matter of the Application of the Fourth South Melbourne Building Society [1883] VicLawRp 11; (1883) 9 VLR (E) 54; Transport Accident Commission v Treloar [1992] VicRp 31; [1992] 1 VR 447, 449; Knightsbridge Estates Trust Ltd v Byrne [1940] AC 613, 621.

[33] (1983) 33 SASR 99, 109-110.

[34] [1802] EngR 342; (1802) 8 Ves 4; (1802) 32 ER 250.

[35] Worrall v Harford [1802] EngR 342; (1802) 32 ER 250, 252.

[36] [1880] 15 Ch D 548 ('Re Johnson').

[37] [1887] 34 Ch D 597 ('Re Evans').

[38] Re Evans [1887] 34 Ch D 597, 601.

[39] Re Evans [1887] 34 Ch D 597, 602.

[40] [1890] 44 Ch D 1 ('Re Blundell').

[41] Re Blundell [1890] 44 Ch D 1, 11.

[42] [1891] AC 190.

[43] Dowse v Gorton [1891] AC 190, 206.

[44] Dowse v Gorton [1891] AC 190, 208.

[45] [1900] 1 Ch 199 ('Re Raybould').

[46] [1901] 1 QB 108.

[47] Jennings v Mather [1901] 1 QB 108, 114.

[48] [1902] 1 KB 1.

[49] Jennings v Mather [1902] 1 KB 1, 6.

[50] [1906] HCA 37; (1906) 3 CLR 1170 ('Savage v Union Bank').

[51] [1902] 1 Ch 342.

[52] In re Frith; Newton v Rolfe [1902] 1 Ch 342, 345−6.

[53] [1911] 2 KB 705 ('Re Richardson (No 2)').

[54] [1901] AC 118.

[55] Hardoon v Belilios [1901] AC 118, 125.

[56] [1911] 2 KB 705.

[57] [1922] NZGazLawRp 213; [1923] NZLR 1009.

[58] (1943) 13 ABC 128.

[59] [1911] 2 KB 705.

[60] Re Richardson (No 2) [1911] 2 KB 705, 709 (Cozens-Hardy MR).

[61] Re Richardson (No 2) [1911] 2 KB 705, 714.

[62] Re Richardson (No 2) [1911] 2 KB 705, 716.

[63] Re Richardson (No 2) [1911] 2 KB 705, 716−7.

[64] Re Richardson (No 2) [1911] 2 KB 705, 711.

[65] (Little, Brown and Co, 4th ed, 1988), [278]; see also Austin Wakeman Scott, The Law of Trusts (Little, Brown and Co, 3rd ed, 1967), [278].

[66] [1914] 2 Ch 617 ('Liverpool Mortgage').

[67] Liverpool Mortgage [1914] 2 Ch 617, 633.

[68] Liverpool Mortgage [1914] 2 Ch 617, 641.

[69] Liverpool Mortgage [1914] 2 Ch 617, 641.

[70] Liverpool Mortgage [1914] 2 Ch 617, 641.

[71] Re Suco Gold (1983) 33 SASR 99, 107.

[72] Re Suco Gold (1983) 33 SASR 99, 107.

[73] [1922] NZGazLawRp 213; [1923] NZLR 1009, 1019−22.

[74] The Hon Mr Justice B H McPherson 'The Insolvent Trading Trust' in P D Finn 'Essays in Equity' (Law Book, 1985) 142, 146.

[75] [1922] NZGazLawRp 213; [1923] NZLR 1009.

[76] Official Assignee v Jarvis, 1019.

[77] Official Assignee v Jarvis [1922] NZGazLawRp 213; [1923] NZLR 1009, 1021.

[78] (1943) 13 ABC 128.

[79] [1922] NZGazLawRp 213; (1923) NZLR 1009.

[80] Re Doyle (1943) 13 ABC 128, 132−3.

[81] [1945] HCA 37; (1945) 72 CLR 319 ('Vacuum Oil').

[82] Vacuum Oil [1945] HCA 37; (1945) 72 CLR 319, 335.

[83] [1862] EngR 473; (1862) 4 DeG F & J 488, 498; [1862] EngR 473; 45 ER 1273, 1277.

[84] (1979) 53 ALJ 648.

[85] Austin Wakeman Scott, The Law of Trusts (Little, Brown and Co, 3rd ed, 1967), 268.

[86] [1979] HCA 61; (1979) 144 CLR 360.

[87] Octavo [1979] HCA 61; (1979) 144 CLR 360, 367−8 (citations omitted).

[88] Octavo [1979] HCA 61; (1979) 144 CLR 360, 369−70 (citations omitted).

[89] Octavo (1979) 144 CLR 367.

[90] Receivers' submissions (dated 10 February 2017), [10].

[91] [1981] MelbULawRw 1; (1981) 13 MULR 1.

[92] [1981] MelbULawRw 1; (1981) 13 MULR 1, 4.

[93] [1981] 1 NSWLR 394 ('Re Byrne (No 1)').

[94] Re Byrne (No 1) [1981] 1 NSWLR 394, 397 quoting Octavo [1979] HCA 61; (1979) 144 CLR 360, 367.

[95] [1922] NZGazLawRp 213; [1923] NZLR 1009.

[96] Official Assignee v Jarvis [1922] NZGazLawRp 213; [1923] NZLR 1009, 1018.

[97] Official Assignee v Jarvis [1922] NZGazLawRp 213; [1923] NZLR 1009, 1018.

[98] Re Byrne (No 1) [1981] 1 NSWLR 394, 398.

[99] [1981] 2 NSWLR 364 ('Re Byrne (No 2)').

[100] [1911] 2 KB 705.

[101] [1900] 1 Ch 199.

[102] [1933] HCA 2; (1933) 48 CLR 171, 174-5 ('Re Universal Distributing').

[103] Re Enhill [1983] VicRp 52; [1983] 1 VR 561, 567.

[104] Re Enhill [1983] VicRp 52; [1983] 1 VR 561, 564.

[105] Re Enhill [1983] VicRp 52; [1983] 1 VR 561, 564.

[106] Re Enhill [1983] VicRp 52; [1983] 1 VR 561, 564.

[107] Re Enhill [1983] VicRp 52; [1983] 1 VR 561, 567.

[108] Re Enhill [1983] VicRp 52; [1983] 1 VR 561, 568.

[109] Re Enhill [1983] VicRp 52; [1983] 1 VR 561, 568.

[110] (1880) 15 Ch D 548.

[111] [1887] 34 Ch D 597.

[112] [1890] 44 Ch D 1.

[113] [1945] HCA 37; (1945) 72 CLR 319.

[114] Re Enhill [1983] VicRp 52; [1983] 1 VR 561, 569.

[115] Re Enhill [1983] VicRp 52; [1983] 1 VR 561, 569.

[116] Re Enhill [1983] VicRp 52; [1983] 1 VR 561, 571.

[117] Re Enhill [1983] VicRp 52; [1983] 1 VR 561, 572.

[118] [1983] 1 NSWLR 158 ('Grime v Whytes').

[119] Grime v Whytes [1983] 1 NSWLR 158, 161.

[120] (1943) 13 ABC 128.

[121] [1866] EngR 131; (1866) 35 Beav 449, 452-3; [1866] EngR 131; 55 ER 970, 971.

[122] Re Suco Gold (1983) 33 SASR 99, 105.

[123] [1911] 2 KB 705.

[124] [1914] 2 Ch 617.