8 September, 2012

 

Legal News & Analysis – Asia Pacific – Australia – Insolvency & Restructuring

 

In the Matter of Willmott Forests Limited (Receivers and Managers appointed) (in liquidation) ACN 063 263 650 [2012] VSCA 202

 

What you need to know

 

  • The Victorian Court of Appeal confirms that where a liquidator of a landlord disclaims a lease the effect of the disclaimer is that all interests of the lessee in the land are extinguished.
  • Accordingly, where a lease with an uncommercial rent burdens land to be sold in a liquidation, a liquidator can seek to disclaim the relevant lease so as to be able to sell the land on an unencumbered basis.

 

It is commonplace for liquidators of tenants to disclaim onerous leases to free the tenant company from its future liability to pay rent and to keep premises in repair. Indeed, under section 568(1A) of the Corporations Act 2001, a liquidator can do so without leave of the court.

 

In contrast, the liquidator of a landlord rarely wants to disclaim any lease. Having a tenant secured and paying rent is valuable, especially when selling commercial premises.

 

Managed Investment Scheme (MIS) leases, however, are different. In the world of MIS, peppercorn or back-ended rents are the norm. Potential buyers of forestry and agricultural land used in MISs usually only wish to do so on an unencumbered basis. In Willmott Forests the liquidators were ultimately successful on appeal (after the Supreme Court at first instance had found that the lessee's proprietary interest in the leased land survived disclaimer) in removing from the land the de-valuing presence of investor leases.

 

The decision is worth keeping in mind for those instances where a lease with an uncommercial rent burdens land to be sold in a liquidation.

 

 

For further information, please contact:

 

Ross McClymont, Partner, Ashurst

ross.mcclymont@ashurst.com

 

Chris Fenwick, Ashurst

chris.fenwick@ashurst.com

 

 

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