Yesterday, the High Court of Australia handed down a significant decision concerning the payment of priority debts out of trust assets where those trust assets are held by an insolvent corporate trustee.
The High Court unanimously held that the priority regime existing under the Corporations Act 2001 (Cth) applied to a trading trust; a vehicle commonly used for carrying on a business.
The High Court also took the opportunity to clarify some conflicting authorities. Prior to this decision, there were competing authorities about how trust assets could be used to satisfy debts. The Victorian Court of Appeal had held that trust assets could be used to pay non-trust creditors; the Full Court of the Supreme Court of South Australia and, more recently, the Full Court of the Federal Court of Australia, had held that trust assets could only be used to pay trust creditors. The High Court agreed with the latter; confirming that trust assets can only be used to pay trust creditors.
The decision provides some welcome clarification on complex legal issues which arise on the insolvency of corporate trustees.
For more information please contact:
LAURA GERCKEN
SENIOR ASSOCIATE