Tag Archives: trustees

Newsflash – the High Court’s judgment in Amerind is in

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This morning the High Court has handed down judgment dismissing the appeal from the decision of the Victorian Court of Appeal in Commonwealth of Australia v Byrnes and Hewitt as receivers and managers of Amerind Pty Ltd (receivers and managers apptd)(in liq) [2018] VSCA 41; (2018) 54 VR 230, which itself was the appeal of the decision of Robson J in Re Amerind (receivers and managers apptd)(in liq) [2017] VSC 127; (2017) 320 FLR 118.

The bench comprised Kiefel CJ, Bell, Gageler, Keane, Nettle, Gordon and Edelman JJ. Whilst the decision to dismiss the appeal was unanimous, three separate judgments were written: one by Kiefel CJ and Keane and Edelman JJ, another by Bell, Gageler and Nettle JJ and the third by Gordon J. The decision is: Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth [2019] HCA 20.

My fuller review of the decision will follow. For now, some highlights –

  • The High Court unanimously held that s 433 of the Corporations Act applies in the exercise of the power of exoneration in the receivership of a trustee company. Slight points of difference in reasoning between the judgments, but the same result. Kiefel CJ, Keane and Edelman JJ expressly pointed out that the same reasoning applies to s 561, which is the provision cognate to s 433 but relevant to liquidators rather than receivers.
  • The High Court unanimously held that accordingly the statutory scheme of priority applies to distribution of the relevant trust property, being here the receivership surplus subject to the trustee’s right of indemnity. It follows from this that the Commonwealth’s claim to priority in the distribution of the receivership surplus by virtue of the payments it had made of employee entitlements under FEGS is vindicated.
  • The High Court went on unanimously to hold that trust assets may only be used to pay trust creditors on exercise of the power of exoneration in a receivership or in the liquidation of a trustee company, not also non-trust creditors. Re Enhill was wrongly decided.

More to follow.

Newsflash – High Court to hand down judgment in Amerind this Wednesday

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The High Court of Australia will be handing down judgment in the Amerind appeal this Wednesday 19 June 2019. Watch this space.

In the meantime, for my review and analysis of the Victorian Court of Appeal decision in Amerind which is the subject of this appeal see here.

For my article considering the Full Federal Court decision in Killarnee and the landscape for liquidating corporate trustees of trading trusts in light of both Amerind and Killarnee see here.

For those who want more, the submissions that have been filed for each of the appellant (creditor Carter Holt Harvey Woodproducts Australia Pty Ltd), the first respondent (the Commonwealth of Australia, which advanced $3.8m for former employees of the company under FEGS) and the second respondent (the Receivers of Amerind Pty Ltd (Receivers & Managers appointed)(in liquidation)) may be read on the High Court website here.

For now, I note that the submissions for the appellant creditor identified the following three issues for consideration in the appeal –

  1. Whether the “property of the company” of a corporate trustee under s 433(3) of the Corporations Act 2001 (Cth) includes not only the trustee’s right of indemnity but also the underlying assets to which the trustee company can have recourse.
  2. The precise nature of, and the limitations upon, a trustee’s right of indemnity where the trustee seeks exoneration in respect of unmet trust liabilities, in particular in the context of the insolvency of the trustee.
  3. Whether a corporate trustee’s right of indemnity from trust assets is “property comprised in or subject to a circulating security interest” for the purposes of s 433(2) of the Corporations Act.

The appellant submitted, inter alia, that –

  • Properly understood, a trustee’s right of indemnity, especially the ‘exoneration arm’ of the right of indemnity, is no more than a right to have trust assets applied to meet trust debts. It confers upon the trustee no interest in the trust assets themselves, or the proceeds thereof.
  • A trustee’s right of indemnity is not subject to s 433(2) of the Corporations Act because it is not a “circulating asset” and hence is not property which is “comprised in or subject to a circulating security interest”.

The appellant submitted that if either of these challenges be upheld, the Court of Appeal’s decision cannot stand.

The Commonwealth identified two issues for consideration in the appeal –

  1. On the basis that the trustee’s right of indemnity gave it a beneficial interest in the assets of the trust – was that interest “property of the company” within the meaning of s 433(3)?
  2. On the basis that s 433(3) applies to property coming into the hands of a receiver who is appointed by a debenture holder ‘secured by a circulating security interest’ – was it necessary that the trustee’s right of indemnity itself be ‘property comprised in or subject to a circulating security interest’? If so, was the trustee’s right of indemnity such property?

The Commonwealth submitted inter alia that –

  • Sections 433, 556 and 561 of the Corporations Act give statutory priority to employees’ claims in insolvency. Insolvency law is statutory and primacy must be given to the relevant statutory text. That statutory priority has been recognised since 1883 in the case of corporate insolvency. The compelling reasons for the statutory priority of employees claims is well known. It is a strong thing to deprive employee creditors of their statutory priority merely because their employer had acted as a trustee.
  • There are no non-trust creditors. There is only one trust. This case does not give rise to the question of whether creditors of the company who are not ‘trust creditors’ may be paid from the proceeds of realisation of trust assets.
  • A trustee’s right of indemnity (whether by way of reimbursement or exoneration) confers on the trustee an interest in the trust assets which is a proprietary, beneficial interest, and takes priority to the interests of the beneficiaries of the trust. This submission relies on several previous High Court decisions, including Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 and Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226.
  • What matters in the Personal Property Securities Act‘s interaction with the Corporations Act is the nature of the security held by the secured party, not the nature of the interest in the personal property held by the grantor. Even if it was necessary to characterise the trustee’s right of indemnity as an asset subject to a circulating security interest, it was such an asset.
  • It follows that, as the Court of Appeal held, s 433(3) was engaged. The Court of Appeal’s decision should be upheld.

We await Wednesday’s judgment with interest.

Big few days next week – not just the banking RC report, but the hearing of the High Court Amerind appeal

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The first few days of next week are shaping up to be pretty big. As has been well covered in the press, the final report by of the Banking Royal Commission has now been handed to the Governor-General and will be publicly released on Monday afternoon 4 February 2019 at 4.10pm, coinciding with the sharemarket close. Reportedly Commissioner Kenneth Hayne’s final report stretches to more than 1000 pages.

Then on Tuesday 5 and Wednesday 6 February 2019 is the hearing of the High Court appeal in Amerind, set down for 2 days. To refresh your memories, for my review and analysis of the Victorian Court of Appeal decision in Amerind see here, and for my article considering the Full Federal Court decision in Killarnee and the landscape for liquidating corporate trustees of trading trusts in light of both Amerind and Killarnee see here.

For those who want more, the submissions that have been filed for each of the appellant (creditor Carter Hold Harvey Woodproducts Australia Pty Ltd), the first respondent (the Commonwealth of Australia, which advanced $3.8m for former employees of the company under FEGS) and the second respondent (the Receivers of Amerind Pty Ltd (Receivers & Managers appointed)(in liquidation) may be read on the High Court website.

 

Newsflash – Amerind High Court appeal listed for hearing

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The Amerind appeal to the High Court of Australia has reportedly been listed for a 2-day hearing on 5 and 6 February 2019. Watch this space.

In the meantime, for my review and analysis of the Victorian Court of Appeal decision in Amerind see here, and for my article considering the Full Federal Court decision in Killarnee and the landscape for liquidating corporate trustees of trading trusts in light of both Amerind and Killarnee see here.

For those who want more, the submissions that have been filed for each of the appellant (creditor Carter Holt Harvey Woodproducts Australia Pty Ltd), the first respondent (the Commonwealth of Australia, which advanced $3.8m for former employees of the company under FEGS) and the second respondent (the Receivers of Amerind Pty Ltd (Receivers & Managers appointed)(in liquidation)) may be read on the High Court website.

Newsflash – Amerind is headed for the High Court

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Papers have reportedly been filed with the High Court by creditor Carter Holt Harvey Wood Products Pty Ltd. Watch this space.

In the meantime, for my review and analysis of the Victorian Court of Appeal decision in Amerind see here, and for my article considering the recent Full Federal Court decision in Killarnee and the landscape for liquidating corporate trustees of trading trusts in light of both decisions see here.

The Rinehart family trust dispute – an overview of trust law principles as to the removal of trustees

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On 31 October 2012 Brereton J of the NSW Supreme Court handed down his judgment on an application by Gina Rinehart and her daughter Ginia, for the summary dismissal of the application of her other children Hope Welker, John Hancock and Bianca Rinehart for inter alia the removal of their mother as trustee of the Hope Margaret Hancock Trust – Welker v Rinehart (No 10) [2012] NSWSC 1330.

His Honour summarised the application for removal of Ms Rinehart as trustee as based upon grounds that, particularly in connection with giving consideration to the extension of its vesting date in September 2011, she so misconducted herself as to demonstrate unfitness to retain the office of trustee. At the core of this were allegations that, as the vesting date approached, she misrepresented to the beneficiaries that they would incur capital gains tax liabilities with catastrophic financial consequences for them unless she exercised her discretion to extend the vesting date, but also informed them that she would so exercise her discretion only if they gave her comprehensive releases in respect of the whole of her past and future trusteeship, and they entered into nuptial agreements with their respective partners, thereby placing immense pressure on the beneficiaries to obtain benefits for herself as the price of her performing her duties as trustee. His Honour acknowledged that it remained to be seen whether or not those allegations would be established at trial.

His Honour noted countervailing considerations which may count against the plaintiffs’ application for removal of the trustee succeeding at trial. One of these was the argument  that, the trust having by now vested, the trustee’s duties are limited. However Brereton J concluded that it could not be said that the plaintiffs’ application for removal met the test for summary dismissal of having been shown to be “hopeless”, “without prospects of success” or “doomed to fail”. He also noted there were issues that could be resolved only at trial. The application for summary dismissal failed and the proceeding will continue.

This judgment provides an interesting opportunity for a brief review of the principles of trust law that apply on an application for removal of a trustee. To distill the principles to which his Honour refers at [7]-[10] as drawn from the authorities there cited (note this is my own summary from these passages of Brereton J’s judgment, not his Honour’s own list) –

1. A trustee can be removed where he or she demonstrates a want of honesty, of capacity to exercise, or of reasonable fidelity to, the duties of a trustee. [7]

2. The Courts of Equity will not intervene at every mistake, neglect of duty or inaccuracy of conduct of trustees. [7]

3. There must be something which induces the Court to think either that the trust property will not be safe, or that the trust will not be properly executed in the interests of the beneficiaries. [8]

4. The jurisdiction to remove a trustee may also be exercised with a view to an efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee. [9]

5. In deciding to remove a trustee the Court forms a judgment based upon a range of considerations which may be many and varied, and which combine to show that the welfare of the beneficiaries is opposed to the trustee’s continued occupation of the office. [9]

6. The judgment a Court forms must be largely discretionary. However a trustee is not to be removed unless circumstances exist which afford sound ground upon which the jurisdiction may be exercised. [9]

7. The due administration of the trust is one of the Court’s central concerns, if not the predominant one. While the safety of the trust estate is undoubtedly an important element of this, it is far from the only one, and a conclusion that a trustee did not understand the nature of the fiduciary obligation, or had manifested an inclination to act inconsistently with it, might well justify removal, even in the absence of any threat to the safety of the trust property. This is because there would in those circumstances be a risk to the due administration and performance of the trust, even if not to the safety of the trust property.[10]

8. Hostility between the trustee and the beneficiaries is of itself not enough – particularly where that hostility is generated by the beneficiaries – nor is a mere preference of a beneficiary to have a different trustee.[7]