Pari Passu now the norm in trust distributions

Articles Written by Sam Johnson (Partner), Nicholas Edwards (Senior Associate), Fraser Andrews

Key takeaways

Section 433 of the Corporations Act 2001 (Cth) (the Act) concerns the payment to employees as priority creditors by a receiver from the assets subject to a circulating security interest. This provision in large part mirrors the payment waterfall contained in section 556 that applies in a winding-up.

In the case of Re Amerind Pty Ltd (receivers and managers appointed) (in liq) [2017] VSC 127 the Supreme Court of Victoria did not apply section 433 to assets held by an insolvent corporate trustee. Robson J did not consider those assets to be ‘property of the company’.  Instead, Robson J determined that those assets should be distributed on a pari passu basis to creditors of the trust. This marks a line in the sand for unsecured priority creditors, especially the Commonwealth Department of Employment (the Department), which is entitled to be subrogated to the same priority position of employees under section 433 following payment of employee entitlements.


Receivers and liquidators appointed to trustee entities should seek advice prior to making a distribution and if in doubt should seek judicial direction. Albeit the position now appears settled it is, in our view, still prudent to ensure the receiver or liquidator is protected from a subsequent challenge.

Unsecured priority creditors should no longer assume they are necessarily first in line on a distribution of trust assets.


Amerind Pty Ltd acted as trustee of the Panel Veneer Processes Trading Trusts, a business manufacturer and distributor of decorative and architectural finishes. Amerind did not have assets of its own and its sole purpose was to act as a trustee of the trading trust.

In March 2014, receivers and managers were appointed to Amerind by its lenders who had the benefit of all assets security. Later that year, after the appointment of administrators, Amerind’s creditors resolved the company be wound up at the second creditors’ meeting and the administrators were appointed as liquidators. The receivers traded the business and realised assets that Amerind held in its capacity as trustee.

The Department paid accrued wages and entitlements to the former employees of the business under the Fair Entitlement Guarantee Scheme and sought to recover those moneys as a priority under section 433 of the Act from the receivers.

The Department made a claim in the receivership for surplus accumulated from the assets subject to a circulating security interest and held on trust. Carter Hold Harvey Wood Products Pty Ltd (CHH), a creditor of Amerind argued that the moneys claimed by the Department should be available to ordinary unsecured creditors of the trust, as opposed to being available to meet the priority unsecured creditors (including the Department).  

Does the waterfall apply?

The issue for Robson J was that there were conflicting authorities on the question of whether sections 433, 556 and 560 of the Act applied in circumstances where assets are held by an insolvent corporate trustee.

The Department and receivers submitted that the assets held on trust were ‘property of the company’, which they claimed was supported by the case Re Enhill Pty Ltd [1983] 1 VR 56, where the Full Court of the Supreme Court of Victoria found that the trustee’s right of indemnity was property of the company and available to all creditors upon liquidation of the company. Importantly, this decision had not been followed in the Federal Court or in any other state of Australia. It was also noted that the decision in Re Enhill considered the legislative regime contained in the Victorian Companies Act, which pre-dated the Act.

CHH on the other hand contended that the Court should apply the reasoning of Brereton J in the Supreme Court of NSW case Re Independent Contractor Services (Aust) Pty Ltd (in liq) (No 2) [2016] 305 FLR 222.  In Re Independent Brereton J found that trust property was not ‘property of the company’ and was therefore not subject to the priority regimes in the Act.

Robson J agreed with the ruling in Re Independent and concluded that Amerind’s trust assets did not constitute ‘property of the company’ and therefore the waterfall regime outlined in the Act did not apply. His Honour also noted the Supreme Court of South Australia’s reasoning in the case of Re Suco Gold (1983) 33 SASR 99. In Re Suco, King CJ rejected the proposition that the trustee’s right of indemnity was itself property of the company available to meet all creditors but nevertheless held that the priority regime applied to determine the order in which the trustee paid its trust creditors from the trustee’s indemnity over the trust assets. In Re Independent Brereton J agreed with King CJ, that the trustee’s right of indemnity was not property of the company but disagreed that the priority regime applied.


Re Amerind is significant because it reinforces the now prevailing view amongst Australian Courts that the distribution of trust assets is not subject to the priority regime enshrined in sections 433 and 556 of the Act. Put another way, where there are multiple creditors of the trust, all creditors share pari passu in the right to be subrogated to the trustee’s lien to enforce the trustee’s indemnity. This means that the employees do not enjoy a preferred priority position as creditors of the trustee.  As a result, the Department does not have a right to priority payment (under section 433) should the Department advance monies to be applied to meet unpaid employee entitlements.

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).

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