Insolvency
A review of the key issues of winding up a Corporate Trustee for the benefit of creditors By Alan Izra MICM*
Alan Izra MICM
A. INTRODUCTORY COMMENTS 1.
The High Court’s decision in Carter Holt Wood products Australia Pty Ltd v The Commonwealth [2019] HCA 20 (‘Amerind’) has been discussed in the previous AICM Magazine. 2. In summary, the High Court in the Amerind held that – a. Section 433 of the Corporations Act 2001 (‘the CA’) applies on the receivership of a trustee company in the exercise of the trustee company’s right of exoneration; b. 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; and c. 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, but not non-trust creditors. 3. Notwithstanding Amerind’s decision, other matters remain unanswered in the winding up of corporate trustees. This article summarises the main issues and principles concerning the liquidation of corporate trustees.
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B. KEY ISSUES ON APPOINTMENT 4. It is common that a trust deed will provide that the trustee is removed on liquidation of the company. In the circumstances, the corporate trustee becomes a bare trustee of the trust assets. Accordingly, the company’s obligations, powers and rights are limited to protecting the trust assets and do not include the power to deal with the trust assets. 5. In such instances, it is usual for liquidators to apply to Court for orders to1 – a. Confirm the liquidators’ power to deal with trust assets; or b. Appoint a receiver over the trust assets. 6. By virtue of paragraph 5 above, liquidators are encouraged to review the conditions of the trust deed to establish whether the company in liquidation is or will be removed as trustee on appointment.
Amending the trust deed 7. In order to avoid the removal of a company as trustee of a trust on a liquidator’s appointment, one option is to amend (i.e to remove ejectment clause) the trust deed before the automatic removal of a company as trustee of a trust. 8. The above option has been
