Australia: The Amerind High Court decision: employee entitlements in insolvency

Who does it affect and why?

The High Court has recently delivered judgment in Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth [2019] HCA 20, more commonly known as the Amerind Case.

One of the vexed questions the High Court decision clarified is whether the Corporations Act statutory priorities prescribed in s433 apply to circulating asset realisations by a company acting in its capacity as trustee of a trust. The implications of the decision for Australian employees are that their entitlements must be given priority in an insolvency irrespective of whether their employer is a company trading in its own right or in its capacity as trustee.


Amerind Pty Ltd ("the Company"), was the corporate trustee of a trust. All of its assets were trust assets, the Company traded solely in its capacity as trustee and did not incur liabilities in its own right. It had granted security over all its assets to Bendigo Bank to secure its obligations under various finance facilities that were provided to it. The Company was placed into voluntary administration by its directors and subsequently placed into receivership by Bendigo Bank as a consequence of the Company's default under its finance facilities.

The Receivers continued to trade on the business of the Company during the receivership and, during the same period, the Company was subsequently placed into Liquidation by its creditors. The Receivers realised sufficient non-circulating assets to discharge the debts owed to the first ranking secured creditor in full but not those of the second ranking secured creditor, Carter Holt Harvey Woodproducts Australia Pty Ltd ("Carter Holt"). Additional circulating asset realisations were then made from the sale of the Company's inventory, and after paying the costs of realisation, there was approximately $1.6 million available for distribution to the Company's creditors ("the Surplus"). During the Liquidation process, the Commonwealth Department which administers the Fair Entitlements Guarantee Scheme (FEG), had funded substantial distributions to former employee creditors of the Company and claimed priority by right of subrogation over the Surplus. Carter Holt, in its capacity as the second ranking secured creditor, also claimed priority over the Surplus. The Receivers applied to the Supreme Court of Victoria for directions regarding the distribution of the Surplus.

At first instance in Re Amerind Pty Ltd (rec and man apptd)(in liq) [2017] VSC 127; (2017) 320 FLR 118, Robson J held that the Surplus was not "property of the company" for the purposes of s433 of the Corporations Act such that the statutory priority regime did not apply to the distribution of the Surplus by the Receivers (effectively giving priority to Carter Holt). Robson J also held that the Company's right of indemnity in respect of liabilities it incurred as trustee was held on trust for trust creditors. This decision was appealed by the Commonwealth and the first instance judgment was overturned by the full bench of the Victorian Court of Appeal in in Commonwealth of Australia v Byrnes and Hewitt as receivers and managers of Amerind Pty Ltd (rec and man apptd)(in liq) [2018] VSCA 41; (2018) 54 VR 230. Carter Holt sought and was granted leave to appeal to the High Court and the High Court has recently delivered its long awaited and landmark judgment.

The Decision of the High Court

In summary, the High Court unanimously held that a corporate trustee's proprietary interest in trust assets (which is created by the trustee's right of indemnity) is "property of the company" for the purposes of s433 of the Corporations Act. Pursuant to s433 receivers must pay the proceeds of realisation of circulating security assets to priority employee creditors before making any distribution to the secured creditor.

The High Court also took the opportunity to confirm that their conclusion applies with equal force in the context of liquidation (since the same reasoning applies to ss433 and 561 of the Corporations Act). Effectively, the provisions of the Corporations Act, specifically sections 433, 561, 556 apply with respect to distributions being made to creditors by Receivers (by virtue of s 433) and Liquidators (by virtue of s561/s556) in the receivership/winding up of a corporate trustee.

Who does it affect and why?

The decision finally lays to rest the ambiguity and previously discordant authorities in relation to the application of the statutory priorities set out in the Corporations Act to the distribution of trust assets where the employing entity is a corporate trustee. That is, circulating asset realisations made by a corporate trustee must be distributed in accordance with the priorities stipulated in s433 (Receivers) and s561/s556 (Liquidators) of the Corporations Act, placing employees in a priority position to secured creditors in respect of circulating asset realisations.

Importantly, the High Court also found that where the trustee's indemnity (in respect of liabilities it has incurred as trustee) against trust assets is exercised by way of "right of exoneration" (that is where the trustee has not used its own money to pay the debts but is seeking to apply trust assets to meet the debts), the proceeds from an exercise of the trustee's right of exoneration can only be applied in satisfaction of the trust liabilities to which the right relates. That is the proceeds cannot be used to meet non-trust liabilities. If there are multiple trusts being administered by a single corporate trustee, or there are trust and company liabilities incurred by a single trustee for example, the High Court acknowledged that these issues may be complicated and will need to be assessed on a case by case basis meaning that specific advice and Court directions will still be advisable.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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