The Australian Corporations Act 2001 provides that a company in liquidation that holds insurance for the benefit of third parties must pay the proceeds of the insurance policy to those third parties in priority to other creditors.  Insurance proceeds payable to third parties under this provision are subject to deductions of "any expenses of or incidental to getting in" those proceeds.  The liquidator of Brighton Hall Securities Pty Ltd sought directions from the court regarding the liquidator's entitlement to deduct his fees and expenses from the insurance proceeds.

The recent Victorian Supreme Court decision of Le Roi Homestyle Cookies Pty Ltd (in liquidation) v Gemmell [2013] VSC 452 determined that a person who does not claim privilege when being publicly examined by a liquidator will not be allowed to avoid pleading and providing discovery in subsequent civil proceedings on the basis that complying may expose them to a civil penalty or criminal sanction.

Facts

The defendants were alleged former de facto and shadow directors of Le Roi Homestyle Pty Ltd.

In our September 2012 insolvency update, we reported on Re Willmott Forests Ltd [2012] VSC 29, where the Victorian Court of Appeal found that a leasehold interest in land is extinguished by a liquidator's disclaimer of the lease pursuant to section 568(1) of the Australian Corporations Act 2001 (Cth).

The High Court of Australia recently decided that when a landlord goes into liquidation, the liquidator may be able to disclaim a lease granted by the landlord.

For a tenant there can be very serious and very expensive consequences if a lease it has taken is disclaimed by its landlord’s liquidator.

A tenant may, however be able to take some steps to protect itself and avoid the expensive and significant consequences of a disclaimer of a lease by the landlord’s liquidator.

What does disclaim mean?

The High Court has ruled that liquidators of lessors can disclaim leases, thus terminating the leasehold interests of tenants.

However, yesterday's High Court decision in Willmott Growers Group Inc. v Willmott Forests Limited (Receivers and Managers Appointed) (In Liquidation) [2013] HCA 51 leaves open another issue: do liquidators need to get Court approval before exercising this power, and, if so, how easy or difficult would it be to get that approval?

Key Points

Key Points

The High Court in Willmott Growers Group¹ has upheld a Victorian Court of Appeal decision that a lease can be disclaimed by the liquidator of a landlord. The decision will have very significant implications for tenants including:

A Deed of Company Arrangement (DOCA) is essentially the equivalent of a PIA for a corporation. However, a company must be in administration for a DOCA to be proposed.

In brief - High Court confirms that liquidators of landlord companies can disclaim leases, terminating lessees' rights

A Personal Insolvency Agreement, otherwise known as a PIA, is a flexible arrangement between debtors and their creditors. It involves a debtor putting forward a proposal as to how their financial affairs should be administered with a view to ensuring that creditors receive a dividend in respect of their debts.

A PIA will only come into operation if it has been accepted by a special resolution at a meeting of creditors – meaning a majority in numbers and at least 75% in value must vote in favour of the PIA.