Landlords beat administrators and obtain possession under s.440C of Corporations Act

  • Author : Robert Hay QC - 27-11-2011

Division 6 of Part 5.3A of the Corporations Act 2001 provides for the imposition of a moratorium restraining parties from taking steps against a company under administration. According to s 435A the purpose of Part 5.3A is to provide for the business, property and affairs of an insolvent company to be administered in a way that maximizes the chances of the company, or as much as possible of its business, continuing in existence, or if it is not possible for the company or its business to continue in existence, results in a better return for the company’s creditors and members than would result from an immediate winding up of the company.

During the administration the owner or lessor of property which is used by or in possession of the property  cannot take possession of the pr operty or otherwise to recover it, except with the administrator’s written consent or with the consent of the court. See: s440C. The onus is on the lessor wishing to take possession that this is the appropriate course. See: Re Java 452 Pty Ltd (1990) 32 ACSR  507.

 

 

In IMO Colorado Group Limited [2011] VSC 552 Gadiner AsJ had to consider applications by landlords under s440C to enforce rights to possession of premises located in two shopping centres leased by Colorado.  When the application was made the administration had already proceeded for six months. With respect to one lease, the administrator of Colorado was appointed three days before the expiry of the term.

 

Upon expiry of the lease the landlord was precluded by s440C from taking possession of the premises. Before the expiry of the lease the landlord had negotiated with a tenant in the shopping centre to lease another site in the centre. The consequence was that three tenants had to relocate including one tenant which agreed to lease the area occupied by Colorado. Because of the moratorium the tenant could not take possession of the premises with the result the landlord lost $17,000 in rent per month and had to contribute $50,000 to the fitting-out of temporary premises for the tenant.

 

Under a second lease, Colorado was due to vacate premises on the expiry of the lease; however, Colorado  went into administration and refused to vacate when the lease ended. The new lessee was unable to take possession of the premises and the landlord was facing a claim for compensation. The administrator opposed the application on the basis that they wished to preserve the businesses and maintain control of the Colorado network in order treduce o implement the proposed sale or restructure and that the grant of leave in respect of the two stores would the likelihood of a successful sale or restructure because key revenue generating stores would have to be closed. They maintained that the new ow ner would be interested in negotiating with the lessors to take on the leases.

 

After reviewing the caselaw, Gardiner AsJ stated that applications for leave under s440C required a balancing exercise involving the weighing up of the interests of the lessors whose proprietary rights in respect of the premises are substantially qualified by the operation of the section and the object of endeavouring to preserve the business of Colorado.  After engaging n the balancing exercise His Honour granted leave to the landlords to enforce its rights to possession.

About the Author

Robert Hay QC

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