Insolvent trusts – get your priorities straight

The High Court of Australia recently handed down its much anticipated decision in Carter Holt Harvey Woodproducts Australia v Commonwealth of Australia & Ors [2019] HCA 20. The court agreed that the priority regime in the Corporations Act 2001 (Cth) (Act) applies to payment of trust creditors of an insolvent corporate trustee.

More specifically, the court decided:

• assets held by a trustee company on trust ('trust assets') are 'property of the [trustee] company' and, if subject to a circulating security interest, are subject to sections 433 and 561 of the Act, which require employee claims to be paid out of circulating assets in priority to a secured creditor; and
• the proceeds of a trustee's right of exoneration can only be used to pay trust creditors, who must be paid in accordance with section 556 of the Act.