King & Wood Mallesons

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High Court to decide on liquidators’ ability to extinguish leasehold interests

Later this year, the High Court will hear an appeal from the decision of the Victorian Court of Appeal in Re Willmott Forests Ltd (Receivers and Managers appointed) (in liquidation) [2012] VSCA 202.

On 10 May 2013, the High Court granted one of the Willmott growers’ groups special leave to appeal the decision relating to a liquidator’s power to extinguish a lease by exercising its power to disclaim a contract. The court will soon provide a final answer to the question of whether a landlord’s disclaimer of a lease by the liquidator of a landlord, using powers under s568(1) of the Corporations Act 2001 (Cth), has the effect of extinguishing the leasehold estate of the tenant.

The Court of Appeal had unanimously decided that such a disclaimer does have that effect. The Court of Appeal’s decision means that having disclaimed the leases, the landlord’s liquidator can now deal with the land unencumbered by such leases. The result for a tenant of land owned by a company in liquidation is that it can lose possession of the leased land. However, the tenant is then treated as a creditor of the company for the loss it has suffered as a result of the disclaimer, which may be small comfort given the insolvency of the company…

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