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Those creditors are nevertheless subrogatedto the rights of the trustee in relation to that property, and in the event of the t/ee becoming bankrupt, it is those rights which are to be realised in their favour.29
Chief C/r Stamp Duties v BuckleT/ee cannot be compelled to surrender trust property to beneficiaries until rights of recoupment/exoneration satisfied.ROI confers priority in administration of trust.To extent assets held by t/ee subject to ROI, they are not ‘trust assets’ or ‘trust property’ in sense held solely upon trust for beneficiaries.30
Implications of proprietary interestIf total amount of t/ee’s liabilities equals/exceeds total value of trust assets, t/ee entitled to entire beneficial interest.ROI of bankrupt t/ee passes to t/ee in bankruptcy or liquidator.ROI does not cease upon termination of t/eeship.If sole t/ee dies, ROI passes to personal representative.If beneficial interest assigned to 3rdparty, taken subject to ROI, unless bona fide purchaser for value w/out notice.Successor t/ee with notice takes assets subject to right of indemnity.31
InsolvencyCreditors of t/ee limited to assets secured by lien for properly incurred expenses.ROI of t/ee is proprietary – passes to t/ee in bankruptcy.Can ROI be used to pay t/ee’s general creditors or used only to discharge debts incurred by t/ee on behalf of trust?Re Enhill – SC Vic (FC) – t/ee’s liquidator could be paid fees out of ROI.Re Suco – if t/ee has discharged trust liability & seeking reimbursement – ROI available for general distribution.But if trust debts not discharged – ROI can only be used to discharge trust debts.32
Limitations on right to indemnityBy statute.By terms of trust instrument?JA Pty Ltd v Jonco Holdings (2000) 33 ACSR 691 – right of indemnity against trust estate cannot be excluded because it is an incident of the office of t/ee & inseparable from it.33
ROI & Breach of TrustRWG Management  VR 385 - t/ee loses right of indemnity (even for particular expense/liability that properly incurred) to extent trust has not been compensated for loss caused by breach.Re Staff Benefits  1 NSWLR 207 per Needham J“In my opinion, it is not every breach of trust which will debar the t/ee from indemnity – the breach must be shown to be related to the subject matter of the indemnity’. 34
Indemnity against personsAs well as ROI out of trust assets, t/ees may have personal right of indemnity against beneficiaries.Ordinarily, beneficiary not liable directly to creditor as principal.But beneficiaries can be personally liable to indemnify t/ee:in respect of liabilities properly incurred;provided beneficiary sui juris & absolutely entitled.