Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth

The High Court of Australia considered an appeal by Carter Holt Harvey Woodproducts Australia Pty Ltd against the Commonwealth of Australia concerning the distribution of surplus proceeds from the realisation of assets by receivers and managers. Amerind Pty Ltd, a company trading solely as a trustee for the Panel Veneer Processes Trading Trust, had granted security interests to Bendigo and Adelaide Bank over its assets. Following Amerind's insolvency, the Bank appointed receivers and managers who realised the trust assets, discharged the Bank's secured debt, and were left with a surplus. The Commonwealth, having paid employee entitlements under the Fair Entitlements Guarantee Scheme, claimed priority over this surplus, a claim contested by Carter Holt.

The central legal issue before the High Court was whether section 433 of the Corporations Act 2001 (Cth) applied to the surplus proceeds arising from the realisation of trust assets by receivers appointed under a circulating security interest. Specifically, the Court had to determine if the company's right of indemnity over trust assets, or the trust assets themselves, constituted "property of the company" comprised in or subject to a circulating security interest for the purposes of section 433, which mandates priority payments to certain creditors.

The High Court reasoned that section 433 of the Corporations Act, which has historical roots in preventing debenture holders from "scooping the pool" of an insolvent company's assets, applies to property that comes into the hands of a receiver. The Court held that a corporate trustee's right of indemnity, which allows it to use trust assets to satisfy its liabilities to trust creditors, is a form of property of the company. When such a right is subject to a circulating security interest and is realised by a receiver, the proceeds are considered to be "out of the property" within the meaning of section 433. This interpretation aligns with the purpose of section 433, which is to ensure that employee creditors receive priority payments even when the company is trading as a trustee, thereby preventing a perverse outcome where insolvency legislation would deny priority solely due to the company's trustee status.

The appeal was dismissed with costs. The High Court affirmed the decision of the Court of Appeal of the Supreme Court of Victoria, concluding that the surplus proceeds from the realisation of trust assets were subject to the priority payment requirements of section 433 of the Corporations Act.