Insolvency Law Update – The Amerind Appeal Decision has been handed down
1 May, 2018Commercial Law & Business TransactionsDispute Resolution, Insolvency and LitigationNews & Updates
The much anticipated unanimous decision of the Victorian Court of Appeal in Commonwealth of Australia v Matthew James Byrnes and Andrew Steward Reed Hewitt in their capacity as joint and several Receivers and Managers of Amerind Pty Ltd (Rcvrs and Mgrs Apptd) (in Liq) & Ors  VSCA 41 (‘the Amerind Appeal’) has been handed down and employees of insolvent trading trusts can be considered the real winners of the recent decision.
At first instance, the trial judge decided that employees of insolvent trading trusts were not entitled to prove as priority creditors in the winding up of an insolvent corporate trustee. The appeal decision set the trial judge’s findings aside.
What the decision means
The Amerind appeal decision means that, at least for Victoria, receivers and liquidators should apply the statutory priority regime under sections 433, 556 and 560 of the Corporations Act 2001 (Cth) when distributing the assets of companies who have conducted their businesses through trading trusts. This is so even if the funds being distributed are the proceeds of trust assets.
Summary of Amerind Appeal decision
In summary, the Victorian Court of Appeal held that:
- A corporate trustee’s right of indemnity from trust assets is property of the trustee company within the meaning of section 433 of the Corporations Act (and not the property of the trust, as the trial judge held at first instance).
- The priority scheme in the Corporations Act applies to the distribution of the relevant property (in this case, the receivership surplus which was subject to the right of indemnity by the liquidators). In the circumstances of this case, this meant that the Commonwealth was successful in its claim for priority in the distribution of the receivership surplus due to it having made payments for employee entitlements under the Fair Entitlement Guarantee (‘FEGS’).
Re Enhill is the (Victorian) authority
The Victorian Court of Appeal made it clear that Re Enhill is the authority that must be followed by trial judges in Victoria. This clarified the position, at least in Victoria, with the recent decision in the matter of Killarnee Civil & Concrete Contractors Pty Ltd (in liq)  FCAFC 40 clarifying the position in the Federal Court. An analysis of the latter judgment is to come in a later website article by the author.
Next stop, the High Court
We understand that leave to appeal to the High Court of Australia is being sought. We will keep readers updated as the High Court matter progresses.
This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice.
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