A liquidator of a landlord company who disclaims a lease under section 568(1) of the Corporations Act 2001 (Cth), a section largely similar to section 269 of the Companies Act 1993 (NZ), does so with full effect, leaving the land unencumbered by the interests of tenants.

The Victorian Court of Appeal has recently held that because a liquidator's disclaimer of the lease under section 568(1) has the effect of discharging the obligations and liabilities of the lessor, the interests of the lessee so far as tenure is concerned must be lost.  The Court further clarified that the disclaimer not only extinguishes the contract for lease, but also the leasehold interest itself.

The Court's reasoning was threefold:

  • It is necessary to affect the lessee's rights in order to release the landlord from its ongoing liability to provide quiet enjoyment
  • Leasehold interests are governed by contract law, thus cannot survive the termination of the contract which brought them into existence
  • Legislative intent in drafting provisions relating to disclaiming onerous property took into account the liquidator's need to have the power to efficiently wind up a company.  An interpretation of section 568(1) which leaves the liquidator free to deal with unencumbered land is therefore preferred.

The practical implications of this ruling, should it be adopted in New Zealand, could be significant for both tenants and liquidators.  Tenants and their financiers could face uncertainty in the event a landlord company is placed into liquidation, while liquidators will be left with more options for dealing with land, knowing it to be free from the interests of tenants.  When the issue was argued in New Zealand, the High Court ruled against disclaimer of a landlord's interest being effective (see Capital + Merchant Investments Ltd (In Rec) v Russell Management Limited here).

See court decision here.