The Federal Court has held that the basic principle that a trustee is entitled to be indemnified out of trust property for liabilities incurred in administering the trust does not apply to a corporate trustee in relation to expenses incurred after it has been wound-up and at which time it merely becomes a bare trustee in relation to the assets comprising the trust fund.
In this case, the corporate trustee had sought to be indemnified for expenses it had incurred in litigation it pursued against the Commissioner after it had been wound-up. This included litigation relating to the validity of a notice served on the trustee’s solicitors under s 260-5 of Sch 1 of the Taxation Administration Act 1953 requiring the solicitors to pay to the Commissioner the sum of $450,000 held on their trust account (in respect of an assessment for over $7m issued by the Commissioner to the trustee after it had been wound up). In Bruton Holdings Pty Ltd (in liq) v FCT (2009) 72 ATR 856, the High Court held that the notice was invalid as the Commissioner’s general power to issue a notice under s 260-5 was not available if a liquidator had been appointed to a company.
