Ian Walker

|Partner

The High Court has confirmed that the liquidators of a landlord can disclaim a lease, with the effect of terminating the tenant's leasehold estate or interests in the land.

A recent decision by the Supreme Court of New South Wales in the matter of Dalma No 1 Pty Limited; Application of Bruce Gleeson and David Shannon, joint and several liquidators of Dalma No 1 Pty Limited and anor, has highlighted an important limitation to section 560 of the Corporations Act 2001. Funds must now be advanced to the company to enable the employees to be paid – not advanced directly to employees.

On 27 June 2013, Justice Brereton of the Supreme Court of New South Wales handed down his decision in the matter of Maiden Civil (P&E) Pty Ltd; Richard Albarran and Blair Alexander Pleash as receivers and managers of Maiden Civil (P&E) Pty Ltd & Ors v Queensland Excavation Services Pty Ltd & Ors. This is the first Australian case to give substantial consideration to the priority of competing security interests under the Personal Property Securities Act 2009. The decision is a seminal one for insolvency practitioners and financiers, clarifying key provisions and rules under the PPSA.

A recent decision of the WA Court of Appeal in Carey v Korda [2012] WASCA 228, delivered on 15 November 2012, confirms receivers retain privilege in communications with solicitors even though they are agents for the insolvent company.

The Commissioner of Taxation has been successful in using a garnishee notice in a novel way to take priority over a secured creditor on the disposal of secured property. While garnishee notices issued after the commencement of a winding up have previously been ruled to be invalid, garnishee notices may in certain circumstances still prevent secured creditors receiving the proceeds of the sale of a secured asset.

An insolvency practitioner taking an appointment as a voluntary administrator under Part 5.3A of the Corporations Act will commonly not have the benefit of an indemnity from their appointor for the fees, liabilities and expenses which are incurred during the administration.

Can the liquidator of a landlord disclaim a lease so that the tenant no longer has any interest in the land? This question has now been answered with a resounding no. The issue was determined by the Supreme Court of Victoria in its decision on a preliminary question that was handed down last week, In the Matter of Willmott Forests Ltd (in liquidation) [2012] VSC 29 (Willmott).

The UK Supreme Court (formerly the House of Lords) recently handed down an important decision in Belmont Park Investments Pty Ltd v BNY Corporate Trustee Services Ltd & Lehman Brothers Inc. The case concerned the validity of a 'flip clause' in some complex structured finance documentation. In essence, the "flip clause" provided that the priority creditor A enjoyed over creditor B would 'flip' or reverse in the event of the insolvency of creditor A.

On 2 June 2011, the Parliamentary Secretary to the Treasurer and Attorney-General jointly released a report on the regulation of insolvency practitioners, Options paper: a modernisation and harmonisation of the regulatory framework applying to insolvency practitioners in Australia.

Lenders will know that when they commence proceedings for possession of any mortgaged property they must serve a notice, including a copy of the originating process, on each on each "occupier" of the property: Uniform Civil Procedure Rules 2005 (Rules)), s. 6.8(1) (b).

But what if the borrower objects, saying that this will do them harm, because, for example, a tenant may become aware of their financial position? And what if the borrower disputes the lender's legal rights, and intends to defend the proceedings? Are there circumstances where this Rule will not be followed?

In our Alert of April 2010, we reported on the important decision of White J in the Supreme Court of New South Wales in Buzzle Operations Pty Ltd (In Liquidation) v Apple Computer Australia Pty Ltd [2010] NSWSC 233, which gave guidance as to when lenders and other third parties dealing with companies might become de facto or shadow directors.

As reported previously, on 23 June 2010, the Senate referred the amending Bill to its Standing Committee on Legal and Constitutional Affairs. Although the Committee's work was interrupted by the August election, it has now handed down its report.

Lenders and other third parties dealing with companies in distress are often concerned that by exercising legitimate legal rights they can become shadow directors, especially when the directors allege they have no choice but to do what the lender wants, because receivership is the only alternative.