A recent High Court judgement has helped resolve uncertainty around the treatment of employees in the insolvency and winding up of trading trusts.
In June this year, the High Court of Australia dismissed an appeal in Carter Holt Woodproducts Australia Pty Ltd v The Commonwealth Bank of Australia and Others (2019)HCA 20 (Amerind decision) and in doing so has prioritised the entitlements of employees in insolvency, irrespective of whether a company is trading it its own right or as a trustee. Specifically, section 433 of the Corporations Act 2011 (Cth) (Act) requires the receivers to pay, out of trust assets, priority employee claims arising from trust liabilities.
The decision is particularly important as there has been an issue in Australian law for some time as to whether the obligations imposed on a receiver or liquidator to pay certain employee creditors out of circulating assets applied to the trust assets of an insolvent corporate trustee.
Trust assets of an insolvent corporate trustee are now available for paying trust liabilities subject to the statutory priority regime in favour of employee entitlements, and those trust assets cannot be used to pay claims for non-trust liabilities.
Employees also have priority over other unsecured creditors to any assets that remain available for distribution once secured creditors have been paid in full – or to the extent of their security.
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