What happens when a trust goes bust

Provided they can afford the outlay of creating one, trusts can be a handy corporate structure for business owners.
They offer indemnity and tax benefits.
What they don’t offer is complete refuge from satisfying outstanding employee claims in the event of insolvency.
It’s been a vexed question for decades: do trusts have the same obligations to their workers as companies when things go belly up?
Late last month, the High Court provided an unequivocal answer: Yes.
The case surrounded the collapse of Amerind Pty Ltd, whose receivers held a $1.6 million surplus after discharging $21 million worth of secured banking debts.
The Commonwealth sought the surplus to help fund $3.8 million in accrued wages and entitlements under its Fair Entitlements Guarantee Scheme. The dispute arose when an unsecured private creditor, Carter Holt, also claimed the surplus.
The seven-person High Court bench found unanimously in favour of the Commonwealth, and by extension, Amerind’s former employees.
“It would be perverse if the Corporations Act operated to deny employee creditors a particular priority over the holders of a circulating security interest solely for the reason that the company which employed them was, perhaps even unknown to the employees, trading as a trustee,” said the judges.
Affirming the Victorian Court of Appeal’s view, the judgment gives greater comfort to workers. As the High Court noted, many are employed within corporate structures that are ultimately governed by trustees. Receivers now have guidance in how to give employees priority over unsecured creditors. And it’s good news for those at the coal face!
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