Timbercorp Securities Limited v Plantation Land Limited (2009) FCA 741 By Madeleine Perrignon | September 2009 Area of Expertise | Business & Property
Summary In order to obtain sufficient time to finalise their investigations, administrators sought a three month ‘standstill’ in relation to payment of rent, even though tenants would continue to remain in possession of the leased premises. Eventually the company was wound up and the liquidators advised the landlord that they were not personally liable for any rent. When this was disputed by the landlord, the Court eventually held that whilst the liquidator was still in the process of considering whether or not to disclaim the lease, they were not personally liable for rent.
Who Does This Impact? Landlords, liquidators and administrators.
What Action Should Be Taken? Landlords should consider serving Section 568(8) notices as soon as possible after liquidation, in order to ascertain the intentions of administrators or liquidators in relation to leases. Liquidators and administrators should appreciate that they are potentially afforded more time to choose whether or not to disclaim a lease.
Facts Timbercorp Securities Limited (‘Timbercorp’) operated its business through managed investment schemes known as the 1999 Timbercorp Eucalyptus Project; the purpose of which was to conduct forestry operations. Timbercorp (as lessee) had entered into several leases with Plantation Land Limited (PLL), in respect of Timbercorp’s operations of growing plantations of eucalyptus trees. Pursuant to the various leases, Timbercorp was entitled to sublease or grant a licence to growers. The Timbercorp group of companies were placed into administration on 23 April 2009. A question arose in relation to liability for rent which accrued under a lease between Timbercorp and PLL. At the time of the appointment of administrators, the rent due to PLL was paid up until 30 June 2009. Timbercorp failed to pay the instalment of rent that fell due on 1 July 2009. On 15 June 2009, the administrators wrote to PLL seeking a ‘standstill’ in relation to the rent until 30 September 2009. They proposed maintaining the existing arrangements under the lease in that the tenants would continue to use, occupy and remain in possession of the leased property. The administrators would not personally adopt any of the leases and would not be personally liable for rent for the September quarter, with the effect that PLL could claim for rent (together with other unsecured creditors) payable in the September quarter. These arrangements would give the administrators time to finalise their investigations into the company. PLL was not interested in entering into the standstill arrangement. Further, if the rent due on 1 July 2009 was not paid, then PLL advised that it would issue a Notice of Termination under the leases.
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Timbercorp Securities Limited v Plantation Land Limited (2009) FCA 741 by Madeleine Perrignon
Following their appointment on 2 July 2009, the liquidators wrote to PLL and advised that they did not intend to ratify the leases and that they did not consider that they had incurred any personal liability for occupying the premises. The parties went to Court in order to resolve the question of whether or not the unpaid rent from 1 July 2009 should be treated as an expense incurred by the liquidator in carrying on Timbercorp’s business, or whether it should be an expense ‘properly incurred by the liquidator’ so as to give the landlord priority for the rent. The liquidators advised the Court that they had given consideration to disclaiming the PLL leases. However, they were concerned that the growers might be adversely affected by such a disclaimer. That is, the liquidator was in ongoing discussions with third parties about selling the assets and finding an alternative scheme manager. If this proposal eventuated, the growers would be able to salvage something of the situation. In reaching a decision as to liability for the unpaid rent, the Court considered the matter of Re Lundy Granite Co; Ex parte Heavan (1871) LRC 6CHAPP462. In this matter, the Court held that if the company, for its own purposes and with a view to the realisation of the property to better advantage, remains in possession of the estate, which the landlord is therefore not able to obtain possession of, then the landlord should receive rent. This was repeated in Re Oak Pitts Coalery Company (1882) 21 CHD 322, when the Court held that if the liquidator has retained possession for the purposes of the winding up, or if he has used the property for carrying on the company’s business, or has kept the property in order to sell it, or to do the best he can with it, the landlord will be allowed to retain the rent which has become due since the winding up. However, if he has kept possession by arrangement for the landlord and there is no agreement with the liquidator that he shall pay the rent, the landlord is not allowed to retain the rent. In other words, if the liquidator has elected to retain possession of the leased land, then the landlord is entitled to payment of rent by the liquidator. Whether or not the liquidator has elected to retain possession may involve a subjective assessment of the state of mind of the liquidator but is usually determined objectively based on what the liquidator has said and done. The Court then determined whether the Timbercorp liquidators, since their appointment, had elected or chosen to retain possession of the leased land. The Court held that they had not. What the liquidators were doing was considering whether such a decision should be made. Perhaps they will decide to retain the leased land or they may resolve to disclaim it. At this point, the liquidator’s enquiries are incomplete and they are not in a position to make the decision.
The Court further held that if so minded, PLL could force the liquidators to hasten its decision by serving a Section 568(8) Notice requiring the liquidators to elect within 28 days (or any longer period allowed by the court) whether or not to disclaim the lease. If they elected not to disclaim it, then the rent accruing thereafter would be an expense of the liquidator.
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Timbercorp Securities Limited v Plantation Land Limited (2009) FCA 741 by Madeleine Perrignon
For more information, please contact:
Madeleine Perrignon Partner T: 02 8257 5710 madeleine.perrignon@turkslegal.com.au
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