Lane (Trustee), in the matter of Lee (Bankrupt) v Deputy Commissioner of Taxation [2017] FCA 953

Lane (Trustee), in the matter of Lee (Bankrupt) v Deputy Commissioner of Taxation [2017] FCA 953

The trustee’s right of exoneration vests in the bankruptcy trustees but may only be exercised to pay trust creditors from trust assets; bankruptcy does not alter its limited nature. The funds are to be distributed solely to trust creditors pari passu, and priority provisions in ss 108 and 109 of the Act do not apply. Costs, expenses and remuneration relating to the distribution may be paid from the trust funds in accordance with the salvage principles. When participating in the distribution from the bankrupt’s personal estate, trust creditors must bring into hotchpot any amounts already received from trust assets.

Jurisdiction
Australia
Judgment Date
18 August 2017
Procedural Posture
Bankruptcy Application for Directions and Relief / Final Judgment and Orders After Hearing Submissions
Legal Topics
['trustee Right of Indemnity' 'right of Exoneration' 'distribution of Trust Funds' 'priority of Creditors' 'payment of Costs, Expenses and Remuneration' 'hotchpot Principle' 'subrogation' 'nature of Trust Property']
['bankruptcy and Insolvency' 'trusts and Trustees' 'commercial Law'] ['trustee Right of Indemnity' 'right of Exoneration' 'distribution of Trust Funds' 'priority of Creditors' 'payment of Costs, Expenses and Remuneration' 'hotchpot Principle' 'subrogation' 'nature of Trust Property']

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Procedural Posture

Bankruptcy Application for Directions and Relief / Final Judgment and Orders After Hearing Submissions

Legal Issues

  1. 1 ["Whether trustee's right of exoneration out of trust assets can be used to pay all creditors or only trust creditors" "Whether right of indemnity is property divisible among bankrupt's creditors or trust property" 'Whether bankruptcy changes the nature of the right of exoneration' 'Whether the priority regime in s 109 of the Bankruptcy Act 1966 (Cth) applies to the distribution of trust funds' 'Whether trust creditors take pari passu' 'Entitlement of bankruptcy trustee to costs, expenses and remuneration from trust funds' 'Application of hotchpot principle']

Ratio Decidendi

The trustee’s right of exoneration vests in the bankruptcy trustees but may only be exercised to pay trust creditors from trust assets; bankruptcy does not alter its limited nature. The funds are to be distributed solely to trust creditors pari passu, and priority provisions in ss 108 and 109 of the Act do not apply. Costs, expenses and remuneration relating to the distribution may be paid from the trust funds in accordance with the salvage principles. When participating in the distribution from the bankrupt’s personal estate, trust creditors must bring into hotchpot any amounts already received from trust assets.

Court Disposition

Orders

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