Her Honour Davies J in the Victorian Supreme Court has ruled that the liquidator appointed to a land owning company cannot use the disclaimer power under the Corporations Act to disclaim leases over that land.
In Willmott Forests Ltd (Receivers and Managers Appointed) (In Liq) & Ors [2012] VSC 29, handed down today, the Liquidators had entered contracts to sell land on which the Willmott forestry schemes' plantations were established. The Liquidators agreed to sell the freehold free of the Growers leasehold estates and sought judicial advice on whether the disclaimer power under s 568 of the Corporations Act could be used to extinguish the Growers' leases.
The Growers argued that the disclaimer power could not be used to extinguish their leases. The Growers' arguments were accepted.
This decision has significance for the restructure and liquidation of agricultural or forestry managed investment schemes. It prevents the Liquidator from unilaterally extinguishing Growers' leases (provided the Growers are not otherwise in default), affording the Growers a greater opportunity to restructure their schemes.
The decision also has wider significance. For example, a Liquidator could be appointed to a company that owned a large shopping centre. If the Liquidator could use the disclaimer power to extinguish shop owners' leases, then he or she may be able to disclaim a large number of leases in the centre. The Liquidator could then either sell the land free of those leases, re-let the shops at a higher rent or try to extract higher rent from sitting tenants. This would, in turn, increase the value of the freehold for the benefit of the company's creditors at the expense of shop owners. Her Honour Davies J's decision, it appears, prevents this from happening.
As far as I am aware, the use of the disclaimer power in this way was first raised before Robson J in Re Timbercorp Securities Ltd (in Liq) (No 3) (2009) 74 ACSR 626 [2009] VSC 510. It was also argued before Davies J in BOSI Securities Services Ltd v Australia and New Zealand Banking Group Ltd (2011) 84 ACSR 341; [2011] VSC 255 and before Dodds-Streeton J in Willmott Forests Ltd, in the matter of Willmott Forests Lit (Receivers and Managers Appointed) (In Liq) [2011] FCA 1517. However, this is the first time that an Australian court has ruled on this question.
Congratulations to Garry Bigmore QC and Matthew Kennedy, instructed by Clarendon Lawyers, whose submissions were accepted by the Court.
