Background of the case
The issue before the court in this case was to consider the circumstances in which a landlord can be allowed to take possession of real property that has been occupied by a company in administration. In this case, a café was run by Java 452 under the name of Java Express. This café was being run on the ground floor of 452-470. The premises was held by Java as a sign me of a lease that has been granted by the owner of the property, Permanent Trustee. After some time, Java started to face financial problems and insulted situation, a notice of default was given by Permanent Trustee to Java under the lease in which the nonpayment of rent was mentioned. Accordingly, administrators were appointed and a meeting of the creditors was also convened. In this meeting, a resolution was passed according to which the company would be wound up was not carried. It is received offers regarding the purchase of the business outright in which the assignment of the lease was involved. On the other hand, Permanent Trustee started proceedings in which it sought leave to take possession of the promises. According to the law. According to Permanent Trustee, in this case the lease had been terminated and it had also negotiated a lease with another party. As a result, it needed the possession of the property.
There was a term present in the lease deed according to which, in case the valid notice of default has been issued, the lessor was allowed to re-enter the premises and in such a case the term “will absolutely cease”. In this case, it was discovered by Byrne J. that even if a physical re-entry had not taken place, the lease had been terminated as a result of the correspondence sent by Permanent Trustee. However the fact that needs to be noted in this case was that the relevant correspondence, which claimed to terminate the lease had been sent after Java was placed in administration. Therefore, it was concluded by Byrne J. that under the common law, a right was present on the part of Permanent Trustee to take possession and this right could have been enforced by re-entry or in the form of action taken for claiming possession.
The Court also consider the effect of Part 5.3A on the issues that were present in this case. It was held that the scheme of Part 5.3A is still provide the power to the creditors of a company that is insolvent or is likely to become insolvent, to determine the future of the company. In this regard, the intention present behind the introduction of this legislation was to provide a short breathing space to the Corporation and also to those who control it. Such a provision prevents the creditors, even the secured creditors, from being involved in a disorderly and distracting grab of the assets of the Corporation during this period because in such a case, the interests of the creditors as a whole may be prejudiced and at the same time, it can also jeopardize the chances that the company may continue with its business under a deed of arrangement or otherwise with the support provided by the creditors. But provision is present for several exceptions to such moratorium. (i) When a lessor had taken steps by commencing administration for recovering the property; (ii) with the consent of the administrator or (iii) With the leave of the court.
The impact of the lease termination on the company
In this case, according to Byrne J, only the third option was available on the basis of the facts of the case. Regarding the exercise of his discretion, as such discretion did not provide any guidance regarding the way it should be implemented; it was stated by Byrne J. that is task to give effect to the object of Part 5.3A. . The court also noted the fact that the discretion provided by section 440C has been conferred on the court without qualification. Therefore it would not be appropriate for the court to set out, even in the form of guidelines, a list of matters that may fetter the exercise of such discretion.
It was argued by Permanent Trustee on this point that the refusal to grant the relief sought by it may result in a hardship on the landlord and also for the proposed payment. It was argued by the administrators that the inevitable result of the order’s sought would be that the company will be forced to go into liquidation. It was recommended by the administrators of the company to its creditors that a DOCA should be executed by the company which involves the assignment of the lease to a purchaser, which could be done either immediately or in future and the interim trade should carry on for the purpose of being in a position to pay dividends to its creditors.
This later argument was accepted by Byrne J and the refuse the application with a view to providing a complete opportunity to the creditors to consider their options. At the same time, the court also recognize that such a decision can only prove to be effective until the holding and the inclusion of the second meeting of the creditors. In this case, the second meeting was only six days away. Thereafter, the Permanent Trustee was considered to be free to exercise the right to take possession of the premises without constraint. However, it was considered that such a time will provide an adequate opportunity to the creditors to consider their options, particularly the options related with the assignment of the term of lease, which the lessor had declined to grant. If it was decided that the Permanent Trustee needs to be bound by the terms of the lease, a future court will have the responsibility to decide if permanent trustee can be held bound.
Hence in this case, the court have to consider the lessor purporting to terminate the lease on the grounds of nonpayment of rent and other breaches shortly before and during administration. The court held that the purported termination before administration is to be considered as ineffective. The reason given by the court was that there was no re-entry and the notice to quit did not comply with the requirements that have been mentioned in s146, Property Law Act in which there is a statement present which requires the lessee to remedy the breach. Consequently, the lease was considered to be on foot when the administration commenced. In this regard, it was held that the terms according to which the company may remain in possession of land during administration are regulated by s443B, where at the time of the commencement of the administration, the land was in the position of the company under an existing lease. A related provision in this regard is that of s440C in which a prohibition has been enforced on the lessor from creating disturbances in the possession without the consent of the leave granted by the court. However, this prohibition is not applicable in cases where at the time of the commencement of administration, the lessor had taken steps for the purpose of recovering the property. This has been mentioned in s441F. However, it needs to be noted in this context that the legislation has not completely disempowered the lessor. It is available to the lessor to give notices regarding the property in accordance with s441J. . The meaning of this situation is that even if the lessor is not entitled to recover the position but still, it is allowed by the law to take steps to perfect its right to possession and this right can be exercised, if available when the administration ends.
The effect of Part 5.3A on the issues
It was also stated by Byrne J. In this case that the demand for possession (which as being considered as being equal to re-entry) that has been made some hours later to the appointment of the administrator, acted to determine the lease, regardless of the fact that the effect of s440C was to prohibit the applicant from taking the possession during administration. Therefore even if the administrator is entitled to possession, the commercial result was that it had no lease to assign during its negotiations to sell the business of the company that was under administration. For example in Roder Zelt-Und Hallenkonstruktionen Gmbh v Rosedown Park Pty Ltd and Eustace (1955) (Roder Zelt-Und Hallenkonstruktionen GMBH v Rosedown Park Pty Ltd & Eustace (1995) 57 FCR) . The ownership of goods was asserted by the plaintiff on the basis of retention of title clause. The plaintiff claimed damages for the breach against the company that was in administration and later on, executed the deed of company arrangement and also against Eustace, who was the former administrator of the company. Therefore in this case, it was stated by the court that while the provisions of Part 5.3A. What applicable in case of the circumstances where it is allowed by the property of the company can be recovered on taken by other parties, they do not result in freezing or suspending the use of every right that is available to the creditors. Such provisions can operate only in accordance with the terms and the rights that are not suspended or modified, can be used if the administration has not taken place. Therefore, it was stated that although s440C, restricted the rights of Roder to recover the goods from Rosedown, while the company was in administration, it was the opinion of the code that these legal provisions did not prevent Roder from making a declaration of the avoidance of contract. Therefore it can be said that in the present case, the appointment of administrator by Rosedown amounted to a fundamental breach of contract that was within the purview of Article 25 that can justify a notification of the declaration of avoidance by Roder.
The resolution passed by the directors, according to which the appointment was made can be considered as an acknowledgment by the directors that the company was insolvent or was likely to become insolvent. This fact and the effect of placing the company under administration, resulted in a detriment to Roder, which later on deprived the company from which it was entitled to expect in accordance with the contract. Therefore it can be said that a lessor can notify the termination of this, although the right to possession enjoyed by the lessor had been curtailed in view of the provisions of Part 5.3A.
In this case, it was submitted by the defendants that if the plaintiffs were allowed to take the possession of the lease land, it will become, practically impossible to perform the deed of company arrangement by the defendants that had been proposed. On the other hand, the plaintiff claimed that sufficient evidence was not present to support this contention. Therefore, after considering the fact that the ability of the company to enter the deed of company arrangement was of special significance, it can be concluded that plausible evidence was presented to suggest that the it will not be possible for the company to pursue deed of company arrangement if the defendant was not allowed to remain in possession of the leased property.
After an analysis of this case, it can be said that this can prove to be helpful in analyzing the emphasis that will be given by the court on the preservation of the rights of the creditors to decide the future of the property. Similarly, the courts will be keen to make sure that the best opportunity is provided to the company regarding its revival. Therefore the courts are not ready to deny this opportunity to the company unless it can be concluded that the company is beyond salvage.
Reference
Java 452 Pty Ltd (Admin Appointed); Permanent Trustee Australia Ltd (as trustee of Advanced Property Fund) v Stout (1999) 32 ACSR 507.
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