If you are a credit manager approving credit for a customer that is trustee of a trust that later goes insolvent, it pays to be aware of two very recent decisions.
These decisions shed light on how the liquidator may distribute surplus funds to creditors when your customer trades in its own corporate right and trades as trustee of the trust.
Why is this important? If the proceeds are trust assets and can only be disbursed to trust creditors, you may gain a windfall or a detriment, depending on your location and the nature of your dealings.
For example, in Victoria, proceeds from trust assets may be disbursed in statutory priority to all creditors (including trust and corporate creditors).
In South Australia & Federally, the position is different. Trust proceeds may only be distributed in statutory priority to trust creditors.
For all other States and Territories? We don’t know, but it is likely that the Federal position would take precedence.
How do you know if you are a trust creditor? Check your credit T’s & C’s and your PPSR registrations. The Court may also look at all the circumstances of your dealings with the customer to determine this question.
Stay tuned though, the Victorian decision has been appealed to the High Court.