Landlord’s liquidator can disclaim tenant’s lease

The High Court today held 4:1 that the liquidator of a landlord company could disclaim both the landlord’s interest and the tenant’s interest in a lease. See: Willmott Growers Group Inc v Willmott Forests Limited [2013] HCA 51.

The decision will have significant implications for tenants and their financiers. Section 568(1) of the Corporations Act permits a liquidator to disclaim certain property of a company, including property that consists of a contract. French CJ, Hayne and Kiefel JJ held that a lease was a species of contract and that the leases which were the subject of the appeal were “property of the [landlord] company” within the meaning of s.568.

Their Honours rejected the contention that the disclaimer power applied only to leases to the company in liquidation and held that the rights of the landlord and tenant ceased from the date the disclaimer took effect.

Gaegler J, who was in the majority, delivered a separate judgment. Keane J, in a powerful dissent, held that a disclaimer could not divest rights that had already accrued such as the interest of a tenant. I will be writing further about this decision.