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

The decisions of the Court of Appeal and the trial judge were considered in our earlier alert that can be accessed by clicking here.

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.1 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. Although 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.

The High Court’s decision will be of some significance to liquidators, tenants and financiers as it:

  1. Will provide a definitive answer to whether a liquidator can disclaim a lease so as to enable the liquidator to deal with the land free from the lease.
  2. Could reduce certainty of tenancy for long-term tenants by exposing their leases to extinguishment upon the liquidation of the corporate landlord. Prospective tenants would need to factor this risk into any long-term leases.
  3. Impact upon the willingness of tenants’ financiers to finance businesses that are heavily reliant on long-term leases.

It remains the case that in most instances, liquidators of landlords will prefer to deal with the land on a ‘subject to lease’ basis, since the value is often closely connected with the long-term lease.

The High Court will hear the appeal in the second half of this year.