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Journal article

The free assets of the company and when they are free to take: equitable subrogation and the secured creditor

27 Aug 2015

Sections 433 and 561 of the Corporations Act 2001 (Cth) preserve the circulating assets of a company or their proceeds for the benefit of priority creditors including employee creditors. A number of recent decisions have contemplated or recognised a right of equitable subrogation available to secured creditors whose security has been diminished by the application of ss 433 or 561.

However, it remains unclear whether ss 433 and 561 impose trust obligations and whether a breach of a trust obligation is necessary for equitable subrogation to be available. This article argues that a statutory right of subrogation should be enshrined in legislation whereby a secured creditor may recover from the free assets of the company to the extent that his or her security has been diminished.

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