Relief against forfeiture II – Lorgenredlich Pty Ltd v Cappadona (Retail Tenancies) [2011] VCAT 1668

This is the next post in my series on recent cases on relief from forfeiture.

I will be posting some comments on lessons learned from these cases in a later post.

The material facts of this case are:

1. the tenant had made a previous application for relief from forfeiture in September 2009, which was granted subject to certain conditions making it easier for the landlord to secure payment of its rent;
2. a further application was made for relief from forfeiture in March 2011, at which time an application was on foot to wind up the tenant company.

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   Relief was granted on the condition that the tenant obtain within 14 days a substitute transfer order from the Bank of Queensland in the name of a related company. The landlord expressed concerns over the impending application to wind up the tenant and the tenant argued that it could not find a buyer for its business without a lease;
3. there was evidence that a purchaser was found, but that the tenant had not provided the proposed assignee’s financial information requested by the landlord;
4. there was evidence of a further winding up proceeding being brought against the tenant (three separate proceedings in total);
5. the tenant’s director gave evidence that he was relying on the deposit for the sale of the business to pay the tenant’s rent;
6. the locks were changed on 9 August 2011, relying on rental arrears; and
7. the arrears were paid the following day and relief from forfeiture was sought.

The Tribunal held that the evidence did not establish that the tenant was demonstrably insolvent, but that there were exceptional circumstances justifying the denial of relief on the following grounds:

1. the tenant was unable to pay its rent except from a deposit or some extraneous source;
2. the default in question was one in a very long line of defaults;
3. there were winding up proceedings pending against the tenant, the fourth since the beginning of 2010;
4. the tenant’s winding up means that the rent payments were at risk of being clawed back as a preference;
5. the contract of sale of business exhibited to the tenant’s affidavit showed that the business was to be sold by a related company, not by the tenant itself, suggesting that the proceeds of that sale would be received by the related company and not by the tenant. As a result, the Tribunal could not be satisfied that the petitioning creditor’s debts would be paid out of the proceeds of that sale;
6. the Tribunal had already given the tenant an opportunity to remain in possession;
7. while the tenant had complied with the letter of the conditions applied to the grant of relief previously by providing a direct debit form from the Bank of Queensland, it was apparent that the rent was not being paid in that way. Consequently, the tenant had not complied with the substance of that condition; and
8. as a result, the Tribunal was not satisfied that the tenant had given full and frank disclosure of its financials, particularly as the tenant seems to have been ‘by-passed’ in the sale and there was a history of default by this tenant.

A copy of the decision can be found here.