When a corporate tenant enters voluntary administration, all of its assets are vested in the administrator. This has consequences for the landlord and the lease cannot always help.
The Corporations Act 2001 restricts the landlord's ability to enforce the lease in the administration period, which usually lasts approximately 6 weeks. This period can, however, be extended by the Court.
During the administration period, the landlord is restricted from taking actions to evict the tenant, collect unpaid rent or enforce director guarantees.
The moratorium (which applies to all creditors) can be frustrating for the landlord, especially where there is another tenant that is prepared to take over the tenancy.
Once appointed, an administrator has a 5 business day rent-free period in which to decide if he/she will retain the property. If the administrator decides not to take on the property, it will likely be abandoned. The make good costs incurred by the landlord are an unsecured debt in the administration of the company.
If the administrator elects to remain in possession of the property after the 5 day decision period, then he/she will be personally liable for the rent incurred while the administrator is in possession.
It is possible, in certain circumstances, for the landlord to seek an order of the Court to enforce its lease in the administration period.
A lease will commonly contain a clause which allows the landlord to terminate the lease when an 'insolvency event' occurs. This clause cannot, however, be called up during the administration period. As a general rule, once the administration ends, the moratorium ends and the lease can be enforced. However, this is not always the case. A deed of company arrangement may be proposed which requires the lease to be preserved. An administrator may apply to the Court to force the landlord not to take possession and not to exercise his/her rights under the lease.