Amerind Pty Ltd (receivers and managers appointed) (in liquidation) (‘Amerind’) operated a business as the corporate trustee of a trading trust. It had no assets of its own to run the business. However, as a trustee, it was entitled to be indemnified from the trust assets for liabilities it incurred on behalf of the trust.
Amerind became insolvent and Receivers were appointed by Bendigo and Adelaide Bank. Under the Fair Entitlements Guarantee Scheme, the Commonwealth paid $3.8 million to Amerind’s former employees toward their outstanding wages and other entitlements. After the bank was paid, the Receivers were left with a surplus of approximately $1.6 million. The question was whether the surplus was property of the company to be distributed according to the priority regime in the Corporations Act 2001 (Cth) (‘the Act’).
The Court of Appeal today held that the Commonwealth (in place of the employees, following its advance under the Fair Entitlements Guarantee Scheme) was entitled to be paid by the Receivers before other creditors from particular assets (such as cash in Amerind’s trading account) because the priority regime in the Act applied.
The trial judge found that Amerind’s right of indemnity was not property of the company and that, consequently, the priority regime did not apply to the receivership surplus. The Commonwealth appealed that decision.
The Court rejected the conclusion of the trial judge, finding that the right of indemnity was property of the company and that the priority regime therefore applied. The Court found it unnecessary, given that Amerind had only trust creditors, to deal with the question whether proceeds of the right of indemnity are to be shared among all the creditors of a company or among trust creditors only.
The second main issue in the appeal concerned whether some of the surplus held by the Receivers should be paid to the Commonwealth before other creditors were paid. The answer to this question depended upon whether certain property, and the right of indemnity itself, fell within the definition of property comprised in or subject to a ‘circulating security interest’. The Court found that, on the proper construction of the Act (s 433), it was not necessary that the corporate trustee’s right of indemnity be subject to a circulating security interest in order for the priority regime to apply to property available to the trustee pursuant to that right. Instead, the relevant question was whether, and to what extent, that property comprised or was subject to a circulating security interest. The relevant time to ask that question was at the time the Receivers were appointed.
As to the particular property in issue, the Court upheld the decision of the trial judge, finding that each of the assets whose characterisation was in dispute was subject to a circulating security interest. These included cash in Amerind’s trade account, funds advanced to Amerind by the bank under a factoring arrangement, and miscellaneous receipts. In dealing with the categorisation of the trade account, in particular, the Court was required to interpret s 340 of the Personal Property Securities Act 2009 (Cth), which defines ‘circulating asset’.
NOTE: This summary is necessarily incomplete. It is not intended as a substitute for the Court’s reasons or to be used in any later consideration of the Court’s reasons. The only authoritative pronouncement of the Court’s reasons and conclusions is that contained in the published reasons for judgment.