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

In Willmott Growers Group Inc v Willmott Forests Limited (Receivers and Managers Appointed) (In Liquidation) [2013] HCA 51, the High Court has confirmed that a liquidator of a landlord company has the power to disclaim a lease. The effect of the disclaimer is to terminate the leasehold interest of the lessee.

FACTS

The Federal Court decision of Crumpler (as liquidator and joint representative) of Global Tradewaves Ltd (a company registered in the British Virgin Islands) v Global Tradewaves (in liquidation), in the matter of Global Tradewaves Ltd (in liquidation)[2013] FCA 1127 provides an illustrative example of the way that cross border insolvency recognition can be used to aid a foreign administration.

Facts

When a company is placed into liquidation, the company’s available funds are paid to general unsecured creditors on a pro rata basis by way of a dividend payment.  However, certain classes of creditors are given priority in the payment of dividends, including employees who are owed wages and other employment entitlements by the company.

What is the position if a person advances money to a company, after it has been placed into external administration, to allow the company to pay wages or other entitlements to employees?

Summary 

In this eBulletin we discuss a recent Supreme Court of NSW decision: In the matter ofGreat Wall Resources Pty Limited (In Liq) [2013] NSWSC 354. This decision provides useful insight into the scope of unreasonable director-related transactions.

Like the mythical bird that dies and then resurrects, phoenixing is the deliberate liquidation of a company to avoid paying tax, creditors or employees and then the ‘resurrection’ of the business through a different entity.

It is illegal and particularly prevalent in the construction sector. It’s time for the states to take action against phoenixing through better licensing of builders.