Landlord’s right to recover property from a company

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18 November 2011

In the decision of Re Colorado Group Limited [2011] VSC 552, the Supreme Court of Victoria considered the circumstances in which a landlord might be granted leave under section 440C of the Corporations Act 2001 (Act) to recover possession of a property from a company in administration.

Facts

Colorado Group Limited (Colorado) was placed in administration and receivers appointed.  Ventana Pty Ltd (Ventana) and PT Limited (PT) were the landlords of separate retail premises leased to Colorado.

PT and Colorado agreed to terminate the PT lease prior to the appointment of administrators.  Ventana contracted with a third party tenant to lease the Ventana premises.  Following their appointment, the receivers declined to give up possession of both premises.  The receivers claimed that they were entitled to remain in possession by reason of section 440C of the Act, which permits landlords to recover possession only with the agreement of the administrator or leave of the court.

The landlords made applications to the court for leave to enforce the recovery of possession.  The receivers and administrators claimed that the remaining Colorado stores were the “foundation stone” of the company and a grant of leave to enforce recovery of possession of the two premises would impede a successful sale or restructure.  They also argued that relocation of the stores would be too expensive and inevitably result in their closure and employee redundancies.  Also, that the grant of leave would open the “floodgates” to similar applications by other landlords, which would further damage the prospects of a successful sale or restructure of Colorado.

Ventana and PT submitted that they are, and would continue to suffer considerable financial loss by reason of Colorado’s continued occupation of the premises.  They also claimed that Colorado would have no right to remain in possession of the premises once the statutory moratorium imposed by section 440C of the Act concludes.

Decision

In weighing up the proprietary interests of the landlords and the object of endeavouring to preserve the business of Colorado as a going concern, the court determined that leave should be granted to the landlords.  The court found that:

  • the stores operating from the premises represent a minor part of the undertaking of the Colorado business;
  • there is no evidence to support an argument that closure of both Colorado stores would impede a sale or restructure;
  • the “floodgates” claim has little merit;
  • no goodwill would pass on to a purchaser under a deed of company arrangement;
  • the landlords would suffer financial loss if leave is refused;
  • there would be no dividend payable to unsecured creditors if Colorado is wound up;
  • the landlords have acted appropriately.

Contacts

James Whittaker

Partner. Sydney
+61 2 9210 6667

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John Stragalinos

Partner. Melbourne
+61 3 9672 3238

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Kirsty Sutherland

Partner. Perth
+61 8 9460 1620

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Mark Wilks

Partner. Sydney
+61 2 9210 6159

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Michael Kimmins

Partner. Brisbane
+61 7 3228 9377

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