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Following in the footsteps of the Victorian Supreme Court in the Amerind appeal, the Full Federal Court has now delivered its decision Re Killarnee Civil & Concrete Contractors Pty Ltd1, providing further clarification as to how the assets of an insolvent corporate trustee are to be dealt with.
The majority of the Court agreed with the main reasoning of the Victorian Court of Appeal in Amerind, that proceeds from the sale of trust assets are subject to the priority regime in the Corporations Act 2001 (Cth) (the Act), but rejected the notion (which, as we noted in an earlier article, was not explicitly rejected by the Court of Appeal in Amerind), that those proceeds can be distributed amongst the company’s non-trust creditors.
Killarnee Civil & Concrete Contractors Pty Ltd (the Company) carried on the business of a trading trust. All assets were held on trust and all liabilities were incurred by the Company in its capacity as trustee. Upon the winding up of the Company, it was automatically disqualified from continuing as trustee by operation of the trust deed.
Amongst other things, the Full Court of the Federal Court in exercising its original (not appellate) jurisdiction considered whether:
The key outcomes from the majority decision in Killarnee (Allsop CJ and Farrell J) are as follows:
With the Courts in both Killarnee and Amerind having now decided that the statutory priority regime applies to distribution of proceeds from trust assets, liquidators can now proceed with greater certainty in dealing with trustee companies and, in particular, trust creditors of those companies.
However, at least in Victoria, the position on whether trust assets can be applied in exercise of the trustee’s right of exoneration to pay non- trust creditors is still far from clear. One upshot of the Victorian Court of Appeal decision in Re Amerind is that Re Enhill (i.e. non-trust creditors can share in the proceeds) is still good law in Victoria, despite the equivocal comments made by the Court of Appeal about the soundness of the decision in Re Enhill. In contrast, the Full Federal Court in Killarnee preferred the Re Suco Gold approach (i.e. proceeds of trust assets can only be distributed among trust creditors). It is worth noting that Killarnee is not an appellate decision as the liquidator’s application had been referred up to the Full Court which sat in its original jurisdiction.
Further, the Killarnee decision still leaves liquidators of companies which acted as trustee of multiple trusts, or companies that carried on non-trust business, in a difficult position. Whilst the statutory waterfall will apply to the distribution of the proceeds of trust assets, it must do so in a way that is consistent with the trustee’s right of exoneration, and each creditor’s claim will have to be carefully considered. In our view, this will necessitate an ongoing role for judicial guidance regarding these issues, as liquidators may be left with little option but to seek directions where the position is not clear.
Finally, this decision is a reminder for liquidators of trustee companies, where the trust deed provides for automatic disqualification upon winding up of the trustee, to seek court approval before selling trust assets. Directions could be obtained at the same time as to the manner of distribution of any proceeds.
1 Jones (Liquidator) v Matrix Partners Pty Ltd in the matter of Killarnee Civil & Concrete Contractors Pty Ltd  FCAFC 40.
2 In re Suco Gold Pty Ltd (In Liq) (1983) 33 SASR 99.
3 Re Enhill Pty Ltd  1 VR 561.
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