Australia: The A – Z of Insolvent Trustees

Last Updated: 7 September 2015
Article by Tom Darbyshire

The insolvency of a company which is the trustee of a trust presents particular challenges for creditors, insolvency practitioners, and beneficiaries. A recent case[1] in the WA Supreme Court provides a handy blueprint for analysing the issues that arise from insolvent trustee companies. It also offers an interesting solution to the problems which liquidators face in having to differentiate between trust and non-trust assets.


In January 2015 Winter Holdings (WA) Pty Ltd was placed into liquidation, as a result of a tax debt of $278,893.94.

Winter Holdings was, among other things, the trustee of the Laurus Arx Trust (the Trust) which was established in 2009. Winter Holdings, as trustee of the Trust, was in a partnership which operated a nightclub in Subiaco (the business).

In 2013 a company called Gold Limousines Pty Ltd (Gold) replaced Winter Holdings as the trustee of the Trust. However Winter Holdings continued to act as a partner in the business. This presented the liquidator with a number of thorny issues.

The issues

A company which is a trustee, or any trustee for that matter, has to be careful when dealing with trust assets. A trust is a legal relationship in which a trustee administers certain property on behalf of the beneficiaries of the trust. Although the trustee is the legal owner of that property, the trustee is obliged to use the property in the best interests of the beneficiaries and in accordance with the purposes for which the trust was established.

So a trustee can't use trust assets for non-trust purposes. A trustee can use trust assets to repay itself for outlays and expenses incurred in administering the trust – this is known as a right of indemnity.

Beneficiaries can't usually deny a trustee their right of indemnity. Indeed, the law recognises that trustees can assert a claim over trust property to enforce this right of indemnity, by way of an equitable lien or charge, although there is significant controversy in Australia about how this can be done.

A liquidator of a trustee company inherits the same issues. They can't use trust assets to pay non-trust creditors, but they can claim the right of indemnity if, before or after liquidation, the company incurs expenses in administering the trust. Most importantly they can enforce the security which supports the right of indemnity if the beneficiaries don't want to pay.

So it becomes critical to work out the capacity in which the insolvent company owns assets and incurs expenses, ie whether it does these things as trustee, or in its own right.

The problem for the liquidator of Winter Holdings was that the tax debt, which was the cause of his appointment, was incurred by Winter in its own right, not as trustee. So the tax debt couldn't be paid from trust assets, as it wasn't a trust debt. Furthermore, right up until it went into liquidation Winter Holdings had incurred substantial expenses in running the business, which was a trust asset, but it hadn't been the trustee since 2013 when it was replaced by Gold.

The Analysis

When Gold replaced Winter Holdings as trustee of the Trust, it should have resulted in Gold becoming the partner in the business. However Winter Holdings had continued to hold the liquor license, the lease, the business name and continued to incur expenses in running the business. It had held itself out as the partner in the nightclub, despite no longer being trustee of the trust.

The court found that because Winter continued to operate the business, it continued to have a right to be indemnified by the trust for the expenses it incurred, and this represented a big win for the liquidator, who became entitled to exercise that right of indemnity against trust assets.

In the course of making this finding, the Acting Master produced an analysis of this complex area of insolvency law that was, with respect, particularly cogent and helpful – see paras 36 – 60.

The Outcome

Having established that the liquidator had a claim against the trust assets, the question then became how to enforce it.

There is a significant split in Australian law about how a trustee can recover costs and expenses after it has been replaced by a new trustee. Some cases say that the former trustee can hang on to trust assets and satisfy its right of indemnity out of those assets; other cases say that the old trustee must make its claim against the new trustee, after it has transferred all trust assets to them.

The controversy was resolved in this case because the Court found that Winter Holdings had continued to be a trustee for some purposes, because Gold had failed to take over the running of the business when it was appointed. Because Winter was still a "bare trustee" it could be authorised to sell trust assets to satisfy the debts it occurred in running the business.

The orders proposed by the Acting Master to give effect to these findings were as follows:

  • The liquidator was appointed as the receiver over the property of the Trust on an interim basis for 90 days.
  • The liquidator had to
    • work out which of his expenses related to winding up the company in its own right, and which related to to the affairs of Winter Holdings as trustee; and
    • provide Gold's solicitors with a detailed estimate of the amount required to satisfy the indemnity, ie the amount required to reimburse Winter Holdings for the expenses it had incurred for trust purposes, up to the end of the receivership.
  • Gold was given until the end of the interim receivership to pay this amount, upon which Winter was required to transfer the business and the other assets of the trust to Gold, as should have happened in 2013;
  • If Gold failed to pay within 90 days, the liquidator was given the power, through the receivership, to sell as much of the assets of the Trust, including its interest in the partnership, to indemnify Winter Holdings, with everything left over to be paid to Gold.

The proposed orders provided an innovative solution to a complicated problem. The decision is, with respect, one that could be of considerable assistance to both insolvency practitioners and their advisors.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Kott Gunning is a proud member of

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

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”

Up-coming Events Search
Font Size:
Mondaq on Twitter
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).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.