Disclaimer of a lease by a landlord’s liquidator – Growers granted special leave to appeal

The High Court yesterday granted special leave to appeal the Court of Appeal’s decision in Willmott Forests Ltd (Receivers and Managers appointed)(in liquidation) v Willmott Growers Group Inc and Willmott Action Group Inc [2012] VSCA 202.

In a decision that has prompted a flurry of online discussions, the Court of Appeal held that a liquidator appointed to a landlord company could use the disclaimer power to extinguish leases granted by that company and sell the land free of the tenant’s interests.  The details and implications of the decision are discussed and links to other online discussions are contained in earlier posts on this blog here.

The grant of special leave, however, is only the first step in the appeal to the High Court.  The appeal will now be listed for a full hearing.  At this stage, a hearing is expected in August 2013.

In the meantime, the Court of Appeal’s decision still stands and practitioners should consider advising their tenant clients that:

1. the Court of Appeal’s decision is subject to a High Court appeal.   However, while the appeal is pending, the decision remains good law.  For the implications of the decision for tenants, have a look at the discussion here;
2. in the unlikely event that tenants receive a notice of disclaimer of their lease from their landlord’s liquidator, they should consider immediately making an application to set aside the disclaimer under s 568B of the Corporations Act.  That application ordinarily needs to be made within 14 days of the liquidator’s notice of disclaimer.  They should also consider challenging in the same proceeding whether a landlord’s Liquidator has power to disclaim the lease;  and
3. if the High Court overturns the Court of Appeal’s decision, the risk of their lease being unilaterally extinguished by a liquidator using the disclaimer power should be removed.  However, if the High Court affirms that decision, the risk remains permanently.

Also, tenants are unlikely to understand the significance of a notice of disclaimer in these circumstances. It is not hard to imagine a tenant approaching a practitioner for advice close to the expiry of the 14 day limit (see text in bold above).  Consequently, practitioners should pay particular attention to the 14 day time limit to avoid a claim being made against them for missing the deadline.

Practitioners acting for liquidators should consider advising their clients of the grant of special leave and, if they are liquidators of landlord companies, to consider the risk of a successful appeal before disclaiming any leases.

Trustees in bankruptcy have a similar disclaimer power under the Bankruptcy Act, so practitioners acting for trustees in bankruptcy of landlords should consider giving them the same advice.