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Issues: (i) Whether the amounts deducted from workers' wages under the tripartite arrangement were impressed with a trust so as to give the Credit Society a preferential claim against the company in liquidation; (ii) Whether the existence of mortgages in favour of secured creditors and the liquidator's right over the equity of redemption could defeat that preferential claim.
Issue (i): Whether the amounts deducted from workers' wages under the tripartite arrangement were impressed with a trust so as to give the Credit Society a preferential claim against the company in liquidation.
Analysis: The deduction scheme under the arrangement was treated as creating an obligation on the company to collect money only as a custodian for onward remittance to the Credit Society. The money deducted from wages did not become the company's beneficial property and was not part of its general assets. On the reasoning applied, such amounts retained the character of trust money and could be followed in the hands of the liquidator before distribution among creditors.
Conclusion: The money was held in trust and the Credit Society was entitled to a preferential claim.
Issue (ii): Whether the existence of mortgages in favour of secured creditors and the liquidator's right over the equity of redemption could defeat that preferential claim.
Analysis: Although the secured creditors had a charge over the company's mortgaged assets and the liquidator could step into the equity of redemption, that position extended only to the company's own assets. Trust money never formed part of those assets, and intermingling with other funds did not destroy its trust character. The priority of secured creditors therefore did not override the society's claim to money held in trust.
Conclusion: The mortgagee creditors' claim did not defeat the Credit Society's preferential entitlement to the trust money.
Final Conclusion: The liquidator was required to release the trust amount to the Credit Society before distribution of the company's liquidation proceeds.
Ratio Decidendi: Money deducted and retained by a company under an arrangement for remittance to a credit society remains trust property, does not form part of the liquidation estate, and must be paid over in priority to general or secured creditors.
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