Deeds of company arrangement - hidden dangers for owners Deeds of company arrangement - hidden dangers for owners

Deeds of company arrangement - hidden dangers for owners

10 June 2010 | General
Henaford v Strathfield Group [2009] NSWSC 539
In a recent NSW decision an owner was prevented from recovering future rent and outgoings from a tenant who had been placed into voluntary administration.
Background
In January 2009, the tenant was placed in voluntary administration and, at the second meeting of creditors in March 2009, the creditors voted in favour of a deed of company arrangement (DOCA) to enable the tenant to continue trading. The owner did not attend this meeting or vote in favour of the DOCA.

The tenant remained in occupation of the premises but did not pay rent or outgoings after the DOCA was signed. The tenant claimed that its liability for future rent and outgoings was extinguished by the DOCA.
Owner's Argument
The owner argued that the DOCA did not bar its claims for future rent and outgoings because:
  • the right to future rent and outgoings had not arisen when the tenant entered voluntary administration;
  • the right to rent was protected from the DOCA under the Corporations Act; and
  • it would be unfair to deprive the owner of future rent and outgoings where the tenant continues to use and occupy the premises after the DOCA took effect.
Outcome
The Court held that the owner's entitlement to rent and outgoings arose when the lease was entered into and so it had been dealt with by the DOCA. Further, the Court held that the Corporations Act only preserved an owner's right (if any) to recover possession of the premises after the administration ends. It did not protect the owner's right to rent and other payments under the lease.

Consequently, the tenant was entitled to remain in occupation of the premises without paying any further rent or outgoings to the owner.
Why the Decision is Important
This decision is a timely reminder to owners to:
  • ensure that your lease provides that the appointment of an administrator, liquidator, receiver and/or manager to a tenant is a breach of the lease;
  • include in a proof of debt for an insolvent tenant all arrears owed by the tenant and all future rent and other lease payments under the lease; and
  • seek legal advice before voting in favour of a DOCA.
For more information on this topic, please contact our Property & Commercial team.