By Darrell Jardine, Partner and Jason Down,
In an important decision, the Full Court of the Federal Court
has clarified a bare trustee's right to indemnity out of the
property of a trust.
Here, Partner Darrell Jardine and Associate Jason Down discuss
this important decision and what Liquidators need to be aware
Key points you need to know
In liquidations of corporate trustees, liquidators need to
carefully examine the terms of the trust deed to determine whether
the role of the trustee is terminated on liquidation.
Liquidators must be alive to the limited nature of the role of
a bare trustee.
Liquidators of bare trustee companies are entitled to be
indemnified out of the property of the trust for the costs and
expenses of litigation commenced to protect trust property.
Details of the decision
In Bruton Holdings Pty Ltd (In Liq) v Commission for
Taxation  FCAFC 79, the Full Court of the Federal Court
has determined that a company in liquidation (Bruton) was entitled
to indemnification from trust property for costs and expenses
incurred during litigation it commenced to protect trust property
even in circumstances where it was only a bare trustee of the
assets of the trust.
A short summary of the facts are as follows:
Bruton was the trustee of a trust pursuant to a trust
After a number of years as trustee, Bruton was placed into
The terms of the trust deed provided that if the trustee went
into liquidation then the office of the trustee was immediately
terminated and vacated.
Therefore, from the time of the commencement of the liquidation,
Bruton ceased to be the trustee of the trust and became the bare
trustee of the assets comprising the trust fund.
A bare trustee is a trustee that holds the property of the trust
for the beneficiaries without any interest in the property other
than the interest existing by virtue of the office and the legal
title as trustee and without any active duties to perform in
respect of the property, other than to convey it to the
beneficiaries as directed by them.
The question for determination in this case was whether the
obligations of Bruton, as bare trustee, extended to opposing by
litigation actions taken by the Commissioner of Taxation.
At first instance, the Court found that Bruton did not have a
right of indemnity from the trust for expenses incurred in
litigation commenced against the Commissioner for Taxation as the
litigation was not part of Bruton's functions or
responsibilities as bare trustee. However, on appeal, the Full
Court overturned that decision and found that Bruton, as bare
trustee, possessed powers and duties outside of the trust deed that
obliged it to vindicate the rights attached to the trust property,
which in this case meant commencing proceedings to protect that
For more information about this decision, please contact
HopgoodGanim's Insolvency Team.
This Update highlights two recent cases that considered circumstances where liens could take priority over a registered security interest.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).