Plaintiff v Defendant

Plaintiff v Defendant - [2011] VSC 552 - VSC 2011 case summary — Zoe

[66]

(1) It is in every case for the person who seeks leave to make out a case for him to be given leave.

(2) The prohibition in s 11(3)(c) and (d) is intended to assist the company, under the management of the administrator, to achieve the purpose for which the administration order was made. If granting leave to a lessor of land or the hirer of goods (a "lessor") to exercise his proprietary rights and repossess his land or goods is unlikely to impede the achievement of that purpose, leave should normally be given.

(3) In other cases when a lessor seeks possession the court has to carry out a balancing exercise, balancing the legitimate interests of the lessor and the legitimate interests of the other creditors of the company: ... It must be kept in mind that the exercise under s 11 is not a mechanical one; each case calls for an exercise in judicial judgment, in which the court seeks to give effect to the purpose of the statutory provisions, having regard to the parties' interests and all the circumstances of the case. As already noted, the purpose of the prohibition is to enable or assist the company to achieve the object for which the administration order was made. The purpose of the power to give leave is to enable the court to relax the prohibition where it would be inequitable for the prohibition to apply.

(4) In carrying out the balancing exercise great importance, or weight, is normally to be given to the proprietary interests of the lessor. Sir Nicolas Browne-Wilkinson VC observed in Bristol Airport Plc v Powdrill [1990] Ch 744 at 767D-E that, so far as possible, the administration procedure should not be used to prejudice those who were secured creditors when the administration order was made in lieu of a winding up order. The same is true regarding the proprietary interests of a lessor. The underlying principle here is that an administration for the benefit of unsecured creditors should not be conducted at the expense of those who have proprietary rights which they are seeking to exercise, save to the extent that this may be unavoidable and even then this will usually be acceptable only to a strictly limited extent.

(5) Thus it will normally be a sufficient ground for the grant of leave if significant loss would be caused to the lessor by a refusal. For this purpose loss comprises any kind of financial loss, direct or indirect, including loss by reason of delay, and may extend to loss which is not financial. But if substantially greater loss would be caused to others by the grant of leave, or loss which is out of all proportion to the benefit which leave would confer on the lessor, that may outweigh the loss to the lessor caused by a refusal ...

(6) In assessing these respective losses the court will have regard to matters such as: the financial position of the company, its ability to pay the rental arrears and the continuing rentals, the administrator's proposals, the period for which the administration order has already been in force and is expected to remain in force, the effect on the administration if leave were given, the effect on the applicant if leave were refused, the end result sought to be achieved by the administration, the prospects of that result being achieved, and the history of the administration so far.

(7) In considering these matters it will often be necessary to assess how probable the suggested consequences are. Thus if loss to the applicant is virtually certain if leave is refused, and loss to others a remote possibility if leave is granted, that will be a powerful factor in favour of granting leave.

(8) This is not an exhaustive list. For example, the conduct of the parties may also be a material consideration in a particular case ...[13]

[68]

(1) It is clear that Ventana and PT bear the onus of persuading the court that leave should be granted.

(2) The Diana Ferrari store conducted at Ventana's premises at Southland is part of a chain of 29 stores in operation. As Ventana points out, it is not shown what proportion of the 2012 earnings is represented by the Southland store to the earnings of the Diana Ferrari Group. The shop at Westfield Carousel is part of a chain of 128 stores. In my view there is no evidence developed beyond assertion that closing the stores at the present time, if leave is granted, would effect the achievement of the policies underlying Part 5.3A as the stores represent such a minor part of the undertakings of the respective chains.

(3) This element is related to (2). The policy underlying the moratorium provisions is to enable the company to achieve the object of the Part. The stores the subject of these applications are but single branches of the respective chains. Because the leases have expired there is nothing in any event in the way of goodwill attaching to the two stores which can be passed on to a purchaser under a deed of company arrangement, unless a successful application is made by the deed administrators under s 444F(4).

(4) The unsecured creditors will receive no benefit from the administration whereas the proprietary rights of the plaintiffs in relation to the two premises are severely restricted. In addition, they are suffering ongoing financial loss by reason of the difference in rent being paid by the receivers compared with that which can be obtained from alternative lessees who are available to take up the tenancies.

(5) The imposition of the moratorium is the source of clear financial loss to the plaintiffs and one lessee has indicated it may sue for being unable to take up its tenancy. The plaintiffs are not able to engage new tenants during the period of the moratorium and enjoy the certainty of longer lease periods. The reconfiguration works at the Westfield Carousel Centre will be delayed for the period that PT is denied vacant possession.

(6) The financial position of Colorado is such that the unsecured creditors will receive no dividends. The receivers are paying current rentals. The administrators' proposals are yet to be determined but because of the expiry of the two leases the subject of these applications, such proposals will not involve ongoing arrangements with Ventana or PT. The administration has already proceeded for a period of six months and will extend to at least early February next year when it may perhaps be further extended, depending upon whether an application is made and granted to do this. As to the effect of the administration if leave were given, it could not, in my view, be said that the receivers or administrators have demonstrated that the prospects of entering into a deed of company arrangement would be jeopardised by the grant of leave in respect of the two premises.

(7) The plaintiffs are each suffering losses by reason of the imposition of the moratorium by the lower rent presently being paid and the inability, until the moratorium is lifted, of securing long term commercial tenants.

(8) The attitude of the plaintiffs was made known to the administrators and the receivers in a timely manner. I could find no conduct which would be regarded as commercially impeachable on the part of the plaintiffs. On the other hand, the receivers have been criticized for not taking up Ventana's offer of alternative premises at the Southland store.

At a glance

Court

Decision date

Before

Source

Judgment (81 paragraphs)

Parties

Cases Cited (1)