Re Java 452 Pty Ltd (Admin Appted); ex parte Permanent Trustee Au stralia Ltd [1999] VSC 252 (9 July 1999)

Supreme Court of Victoria|1999-07-09|Before: Byrne J

The applicant, Permanent Trustee Australia Ltd ("Permanent Trustee"), seeks an order pursuant to s.440C of the Corporations Law that it have leave to take possession of the premises situate at and known as Ground Floor, 452-470 Flinders Street, Melbourne, alternatively a declaration that it is entitled to recover possession of the premises pursuant to s.441F. On these premises the thirdnamed respondent, Java 452 Pty Ltd ("the Company"), conducts the business of a café under the name "Java Express". It has held the premises as assignee of a lease granted in 1995 by the then owner. Following its purchase of the freehold in 1998 Permanent Trustee is now registered as the proprietor of the premises. The transfer of lease to the Company is dated 4 January 1999 although it is expressed to have been effective from 7 October 1998. In the normal course, the term of the lease would expire in July 2005 with two five year options.

On 26 March 1999 the solicitors for Permanent Trustee gave notice of default under the lease asserting non-payment of rental due for December 1998, January, February, and March 1999 totalling $51,458.38. The notice warned that if the breach be not remedied within 14 days, Permanent Trustee would re-enter the premises. The notice expired on 9 April 1999.

On 31 March 1999 the solicitors for Permanent Trustee gave a further notice of breach which was expressed to have been given under s.146 of the Property Law Act 1958. The breaches of the lease alleged are a failure to pay $1,948.03 interest arrears and $3,100 legal costs and a failure to provide a $41,343.75 bank guarantee. The notice warns the tenant that unless the breaches are remedied within 14 days Permanent Trustee "may re-enter the premises or forfeit the lease without further notice". This notice expired on 14 April 1999.

At a meeting of the directors held at 9.15 a.m. on 6 April 1999 the first and second named respondents, Kenneth John Stout and Robert Michael Scales, were appointed joint administrators of the Company pursuant to s.436A(1). At the time of their appointment the Company was in possession of the premises but the breaches alleged in the two notices had not been remedied. The administrators have continued to conduct the business from the premises in the expectation of selling it as a going concern.

On 3 May 1990 the second meeting of creditors was held pursuant to s.439A. At this meeting five creditors were represented with a total value of about $2.2M. The creditors and the amount of their debt, as admitted to vote, were as follows.

According to the Administrators' Report to Creditors dated 26 April 1999 Adcore is a secured creditor under a debenture given by the Company in October 1998 as security for money advanced to it and to other companies within the Java Group. The report says, too, that Adcore is the sole shareholder of the Company. I infer that the interest of Freehills arose pursuant to clause 3.6 of the lease for Permanent Trustee's legal costs incurred as a result of the Company's default. At the meeting a resolution that the Company be wound up was opposed by Permanent Trustee and Freehills but supported by the representatives of the other creditors. The resolution was not carried. The creditors were told at the meeting that the administrators had received two offers to purchase the business for $200,000 and $150,000 respectively. The administrators proposed that one of these offers be accepted and that the purchaser take an assignment of the lease. The representative of Permanent Trustee maintained that the lease had been terminated and that Permanent Trustee had itself found a prospective tenant with whom it was in negotiation. He said in the end that Permanent Trustee was not prepared to negotiate with the tenants found by the administrators. The meeting was adjourned for a period of not more than 45 days.

On 5 May 1999 the administrators wrote to the letting agents of Permanent Trustee enclosing offers to purchase the business made by Melbourne Mooring Services Pty Ltd dated 3 May 1999 ($200,000) and Messrs Grigoriadis and Parveris dated 26 April 1999 ($150,000). Each offer involved an assignment of the lease.

On 9 June 1999 notice was given to creditors of adjourned second meeting to be reconvened at 2.00 p.m. on 17 June. In the notice the administrator recommended a deed of company arrangement pending the decision on the sale of the business and assignment of the lease. Attached to the notice was a summary of recommended clauses of the proposed deed of company arrangement.

On 17 June 1999 Permanent Trustee commenced this proceeding seeking leave to take possession of the premises pursuant to s.440C. The application came before me as an urgent application in the course of the morning because, as I was told, there was an adjourned creditors' meeting to be held at 2.00 p.m. on that day. Counsel for Permanent Trustee said that his client was apprehensive that a scheme of arrangement might be proposed at the meeting and that Permanent Trustee would be at risk under s.444F(4) if such a proposal were made. Upon an undertaking given on behalf of the administrators that they would not at the meeting seek a resolution in favour of a deed of company arrangement under s.439C(a), the matter was adjourned to 25 June to enable them to place material before the court. This they have done by affidavit of Mr Stout sworn on 24 June 1999. Later that day the meeting of creditors was further adjourned to 1 July.

On 30 June in proceeding No. 5969 of 1999 I extended the limit prescribed by s.439B(2) for the adjournment of the meeting of creditors to 17 July 1999.

The effect of the administrators' material may be shortly stated. The Company was at the beginning of the administration insolvent. In these circumstances, the choices available were either liquidation, in which case the creditors would receive nothing; or a deed of company arrangement under which the Company would trade on in the hope of profit or perhaps sell the business; or a simple sale of the business as a going concern. The second or third option offered the prospect of some return, principally for the secured creditor. I say principally because Adcore has agreed that, if the business is sold, some part of the proceeds of sale would be available to unsecured creditors. Ultimately, the choice came down to liquidation or a deed of company arrangement. The Company remains in occupation of the premises with the administrators paying current rental at the rate provided in the lease.

On 15 June 1999 Permanent Trustee advised the administrators that neither of the proposed tenants was acceptable to it. It is said that this advice was given without explanation or proper reason. The explanation, if not the reason, lies in the fact that Permanent Trustee has negotiated with a new tenant, N'Joy Australia Pty Ltd, a lease for five years with a side agreement whereby the tenant is to spend up to $100,000 to improve the premises and Permanent Trustee $50,000. In these circumstances Permanent Trustee maintains that the lease has been terminated and it seeks to take possession. It is convenient to consider first, what is the position at common law and, then, what is the effect, if any, upon this position of the Corporations Law Part 5.3A.

Counsel for Permanent Trustee submitted that the lease has been terminated so that the tenant has no present right to possession. He put forward four bases upon which the term contained in the lease has been terminated. First, following non-payment of rent; second, following other breaches mentioned in the Section 146 notice; third, following the appointment of the administrators; and, fourth, by its acceptance of the company's repudiation of the lease.

As to the ground based on non-payment of rent, there is no dispute that the Company was in arrears in the sum of $51,485.38 at the time of the giving of the Notice of Default on 26 March. Under cl. 10.1.1 of the lease this is an event for which the lessor might re-enter the premises and thereupon the term "will absolutely cease and determine". What is said for the Company, however, is that no re-entry has taken place so that the lease remains on foot.

As to the Section 146 breaches, there is again no issue as to their existence as on the date of the notice. What is said here is, first that the notice did not satisfy the formal requirements of Section 146 and, second, that again no re-entry has occurred. There is substance in the first point. The notice fails to contain a statement requiring the tenant to remedy the breaches specified and, since they are capable of remedy, the notice does not comply with the requirements of Section 146: Glass v Kencakes Pty Ltd [1965] 1 QB 611 at 622-3, per Paull J.

As to the ground based on the appointment of the administrator, cl. 10.1.7 provides that the placing of the Company under administration on 6 April 1999 is an event entitling the landlord to re-enter and to determine the lease. The Company then raises the same point that no re-entry has taken place.

It is convenient, then, that I now deal with the re-entry issue. It was accepted by the parties that the requirements of re-entry are either a physical re-entry, the commencement of an action for ejectment or an unequivocal demand for possession: Rosa Investments Pty Ltd v Spencer Shire [1965] VicRp 13; [1965] VR 97.

Counsel for Permanent Trustee then contended that the bringing of this application is the equivalent of an action for re-entry. I do not agree. It is clear that from the analysis of the authorities undertaken by Sholl J in the Rosa Investments case that what is required is an action for ejectment or its modern equivalent. A complaint in the Magistrates' Court seeking possession is not such an equivalent. It cannot be filed until the tenancy is already at an end. Likewise, the present application which seeks, in effect, a dispensation from the moratorium created by Part 5.3A presupposes the non-existence of the lease. If an order under s. 440C were made in this proceeding it would merely remove a statutory bar preventing Permanent Trustee from taking possession of the premises or otherwise recovering them; it would not involve the court ordering that the company or the administrator deliver up the premises to the landlord. Applying to s.440C and s.440D the analysis of ss.444F and 444E undertaken by Hodgson J in J & B Records Ltd v. Brashs Pty Ltd (1995) 36 NSWLR 172 at 179-182, the role of the court under s.440C is to permit the lessor only to exercise the extra-curial enforcement and recovery procedures or self-help rights of a lessor. If an order for possession, properly so-called, is sought the lessor must commence a proceeding for that purpose after first obtaining leave under s.440D. See also Hamilton v National Australia Bank Ltd (1996) 66 FCR 12 at 31, per Lehane J; Lam Soon Australia Pty Ltd v Molit (No. 55) Pty Ltd (1996) 70 FCR 34 at 41 (Full Fed. Ct).

It was next submitted that the correspondence showed an unequivocal demand for possession which amounted to a re-entry. The terms of the two notices are such that no demand for immediate possession was made in either of them, at least until the dates of their expiry, and probably not at all. As at the date of the commencement of the administration, then, there had been no re-entry by an unequivocal demand and the lease was still on foot.

Counsel for Permanent Trustee then contended for a termination of the lease after the date of appointment of the administrator. I remind myself that I am here dealing with the common law position of the parties, leaving to one side the provisions of the Corporations Law. There is no doubt that in the solicitors' letter sent at 4.28 p.m. on 6 April 1999 Permanent Trustee asserted that the lease was at an end and it has continuously maintained this position in its correspondence, at the creditors' meetings and before me. I conclude that at common law the lease was terminated upon receipt of that letter pursuant to clause 10.1.1 or clause 10.1.7. The fact that the letter relies only upon clause 10.1.7 does not preclude Permanent Trustee from relying upon any other available ground: Shepherd v. Felt & Textiles of Australia Limited [1931] HCA 21; (1931) 45 CLR 359 at 378, per Dixon J. Insofar as the right to re-enter for non-payment of rent was deferred for 14 days under the terms of the notice of 26 March, the lease was determined by the demand made in the letter of 16 April 1999.

It is not necessary for me to consider the fourth basis of termination, namely common law repudiation. Nevertheless, in deference to the submissions advanced and in case the proceeding may go further, I shall briefly venture my views on this point. The argument for common law repudiation in essence relies upon all of the breaches mentioned in the two notices and upon the appointment of the administrators. An associated submission which was developed from it was that the company was in breach of fundamental terms of the lease and that the landlord was thereby entitled to determine it forthwith. Under clause 10.2.1 the obligations of the tenant to pay money and its obligations under clause 3 are agreed to be essential terms. Two of the breaches alleged in the s.146 notice are breaches both of an obligation to pay money and of clause 3. It is then said that Permanent Trustee was entitled to accept the Company's repudiation and fundamental breach and that it has done so by its persistent demands for possession.

In particular the following communications were relied upon as constituting acceptance.

* Section 146 notice (GTF 13)

Two things should be observed about these bases for determination. First, the rights which Permanent Trustee would assert for these breaches cannot be exercised where s.146 of the Property Law Act has not been complied with. This means that the breaches mentioned in the s.146 notice may not be available for want of its compliance with that statute. Second, the acts of acceptance, other than the two notices, post-date the appointment of the administrators. These two notices themselves do not contain any acceptance of repudiatory conduct or any termination for breach of an essential term. It follows from this that, at the beginning of the administration, the lease had not been terminated on either of the bases under present consideration. What is put, then, is that Permanent Trustee accepted the repudiation or terminated for breach of an essential term during the administration period.

It is well established that conduct by a lessee in breach of the lease may amount to a repudiation of the lease and, if accepted, terminate the term: The Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1995) 157 CLR 17. I accept, too, that persistent non-payment of rent may amount to repudiation but it is usually accompanied by other repudiatory acts or indications of an intention no longer to be bound by the lease or to perform its obligations under the lease in a manner substantially inconsistent with its terms: Shevill v The Builders' Licensing Board [1982] HCA 47; (1982) 149 CLR 620 at 625-6, per Gibbs CJ. The mere fact of the commencement of the administration does not itself establish repudiation: Smith v Commissioner of Taxation (1996) 71 FCR 150. Compare Roder Zelt-Und Hallenkonstruktionem GmbH v Rosedown Park Pty Ltd [1995] FCA 1221; (1995) 57 FCR 216 at 234, per von Doussa J (breach of fundamental term).

The evidence before me shows that the Company has paid no rent in the period from December 1998 until the beginning of the administration. On the date of the execution of the transfer these arrears were in excess of $20,000. The notice of default of payment of rental was given on 26 March 1999. A few days later on 31 March at 11.40 a.m. the Company enquired whether there would be any other unremedied breaches if the arrears of $51,489.38 were paid by 9 April, that is by the date stipulated in the notice. The response of Permanent Trustee by its solicitors' fax of 4.41 p.m. on the same day was to identify three further breaches which are set out in the s.146 notice and to give that notice. The resolution to appoint the administrators was made on 6 April shortly before the expiry of the first notice. I do not infer from this that the Company had at the time of the beginning of the administration repudiated the lease. Indeed it is apparent from the correspondence that it was negotiating with the landlord to regularise its position.

It was, I think, only faintly argued that events following the appointment of the administrators amounted to repudiation, either of themselves or in conjunction with the previous repudiatory acts. It would probably have been imprudent, if not improper, for the administrators to have paid Permanent Trustee the arrears of rent in preference to other creditors, at least without their approval. Evidence was led by affidavit of Geraldine Thérèse Farrell sworn on 29 June that on that date the administrators had not paid rental for the periods 21 to 27 June and 28 June to 3 July in the total sum of $6,343.16. The affidavit of Mr Stout in reply shows that at 2.32 p.m. on 29 June the agents of Permanent Trustee sent an account for the rental to the administrators and that on the same day cheques for the sums demanded were delivered to those agents. This evidence fails to provide a factual basis for the submission of counsel for Permanent Trustee that the Company under administration was not able to meet its rental commitments. The administrator has consistently taken the position that the Company asserts the continuing existence of the lease. I conclude, that as at this date, the Company has not repudiated the lease.

I turn now to the question of breach of fundamental terms. I have already referred to clause 10.2.1 which identifies as essential terms the obligation to pay money and those imposed by clause 3. For present purposes, given the deficiencies of the s.146 notice, I am concerned only with the obligation to pay rent. I accept that the essentiality of the term must be assessed by the court after an examination of the lease as a whole and having regard to any expressed intent of the parties to the lease: DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423 at 430, per Stephen, Mason, Jacobs JJ. I am satisfied on this basis that the obligation to pay rental is an essential term. In March 1999 the company was in breach of that term and the landlord was entitled forthwith to determine the lease.

The response of Permanent Trustee to this breach, however, was not to terminate the lease forthwith but to give the notice of 26 March requiring the tenant to remedy the breach by 9 April, permitting the tenant to remain in possession in the meantime. The tenant did not remedy the breach. No argument was presented as to the effect of the giving of the 26 March notice upon the right of the landlord to determine the lease summarily for non-payment of rent. I am prepared to proceed on the basis that the right was suspended until the notice expired on 9 April. On that basis, at common law, Permanent Trustee was then entitled to determine the lease on that ground.

I conclude this discussion of the common law position, leaving to one side the constraints imposed by Part 5.3A, by summarising the position as follows:

(1) The lease was not terminated at the beginning of the administration on the morning of 6 April 1999.

(2) The lease was terminated pursuant to clause 10.1.7 by re-entry constituted by the demand for possession contained in the solicitor's letter of the afternoon of 6 April 1999.

(3) The company was at the beginning of the administration in breach of its obligation to pay rent and Permanent Trustee was on 9 April, and possibly on 6 April, entitled to determine the lease for this reason either pursuant to clause 10.1.1 or for breach of an essential term. If it had not already done so Permanent Trustee was entitled to terminate the lease at least on 9 April and it did so by its letter of 16 April.

(4) Permanent Trustee has a present right to possession of the premises which right it might enforce by re-entry or by action for possession.

THE EFFECT OF PART 5.3A

Part 5.3A was introduced in 1992 following the report of the Australian Law Reform Commission, called the Harmer Report (ALRC 45). Its scheme, generally, is to confer on the creditors of a company which is insolvent or likely to be so the power to determine its future. For this purpose its affairs are temporarily entrusted to an administrator who reports to the creditors. A feature of the legislative scheme is that the rights of creditors and chargees against the company and its property are restricted during the period from the beginning of the administration until the holding and conclusion of the second meeting of creditors. This will ordinarily be a very limited period because the meeting will normally be first held within about 33 days after the beginning of the administration and its business concluded within 60 days thereafter: ss.439A(1), (2), 439B(2). This period is to enable the administrator to take possession of the company's assets and books, to investigate its affairs and to consider possible causes of action, to prepare a report to creditors and to enable the creditors themselves to consider the options provided under s. 439C. During this period the ordinary right to sue the company and even enforcement processes are, generally speaking, suspended: ss.440D, 440E. The intention of the legislation is to create a short breathing space for the company and those in control of it. It prevents creditors during this period, even secured creditors, from engaging in a disorderly and distracting grab for the assets of the company which might prejudice the interests of the creditors as a whole and jeopardise the possibility that the business of the company might be continued under a company deed of arrangement or otherwise with the support of the creditors.

The impact of this statutory moratorium, insofar as it concerns property leased by the company at the beginning of the administration, is to be found principally in ss. 443B, 441F, 440C, 444F, and 444D. Section 443B regulates the terms upon which the company may during the administration remain in possession of land where, at the beginning of the administration it was in possession of it under an existing lease. The companion of this is s.440C which prohibits the lessor from disturbing this possession without consent or leave of the court. This prohibition, however, does not apply where, at the beginning of the administration, steps have already been taken by the lessor to recover the property: s.441F. The legislation does not, however, totally disempower the lessor, for it may give notices relating to the property: s.441J. This means that, although the lessor may not recover possession, it may take steps to perfect its right to possession which right may be exercisable, if available, at the end of the administration: Roder Zelt-Und Hallenkonstruktionem GmbH v Rosedown Park Pty Ltd, [1995] FCA 1221; (1995) 57 FCR 216 at 234, per von Doussa J. See also Robinson, "Statutory Moratorium on Proceedings Against a Company" (1996) 24 ABLR 429 at 435.

One of the courses open to creditors under Part 5.3A is to resolve that the company execute a deed of company arrangement. When such a course is proposed the court might intervene to restrain the lessor of property which is in the possession of the company from taking possession of it or otherwise recovering it: s.444F(4). Presumably this power would be exercisable where s.440C had no application, for example, where s.441F applies. Finally, where a deed of company arrangement which affects leasehold property is entered into, it does not affect the rights of the lessor over the property unless the lessor has voted in favour of the deed or the court so orders: s.444D(3).

Permanent Trustee as lessor of the land seeks declarations that s.440C does not apply to it by reason of s.441F and, in the alternative, relief under s.440C. A convenient starting point therefore is s.441F which is in these terms.

"441F(1) This section applies if, before the beginning of the administration of a company, a receiver or other person:

(a) entered into possession, or assumed control, of property used or occupied by, or in the possession of, the company; or

(b) exercised any other power in relation to such property;

for the purpose of enforcing a right of the owner or lessor of the property to take possession of the property or otherwise recover it.

(2) Nothing in section 437C or 440C prevents the receiver or other person from performing a function, or exercising a power, in relation to the property."

Counsel for Permanent Trustee submitted that the giving of the notice of default on 26 March 1999 or the s.146 notice on 31 March 1999, or both of them, was an exercise of a power in relation to the property for the purpose of enforcing a right of the lessor to take possession, within the meaning of s.441F(1). Accordingly, it was put, the constraints imposed by s.440C do not apply: s.441F(2). I do not agree. The 26 March 1999 notice was not given as a step for the obtaining of possession or otherwise recovering the property; it was neither required nor contemplated to be such under the lease or at law. See Tymray Pty Ltd v Mercantile Mutual Life Insurance Co Ltd (1994) ACSR 111 at 114, per McLelland CJ in Eq. Likewise, the Section 146 notice cannot be a step for it was ineffective for non-compliance with the statute as I have mentioned. Accordingly, Permanent Trustee is not entitled to the protection of s.441F(2).

The demand for possession of 6 April 1999 which is the equivalent of re-entry was made after the beginning of the administration. Although its efficacy is not effected by any provision of the statutory moratorium, it does not because of its timing provide a basis for the operation of s.441F(2).

"440C During the administration of a company, the owner or lessor of property that is used or occupied by, or is in the possession of, the company cannot take possession of the property or otherwise recover it, except:

(a) with the administrator's written consent; or

(b) with the leave of the Court."

No guidance is given in the statute as to the manner in which the discretion to grant leave might be exercised. In these circumstances, I see my task as that of giving effect to the object of Part 5.3A as that appears in s.435A and, generally, from the legislation. At the same time I must have regard to the fact that, in many respects, the statute intrudes upon the rights of persons dealing with the company under administration and with the administrators themselves. I must seek to balance the statutory objects with the rights of those persons, bearing in mind that, in case of conflict, the will of Parliament must prevail.

The section permits the lessor to take possession where the administrator consents. In the normal course it would be proper for the lessor to seek this consent before approaching the court. It may be assumed that an administrator who is exercising statutory functions would consider and respond to that request promptly and responsibly. As Nicholls LJ put it, speaking for the Court of Appeal when dealing with this aspect of the comparable s.11(3)(c) of the Insolvency Act 1986 (UK) in Re Atlantic Computer Systems plc [1992] Ch 505 at 529.

"The administrator should also make his decision responsibly. His power to give or withhold consent was not intended to be used as a bargaining counter in a negotiation in which the administrator has regard only to the interests of the unsecured creditors. When he refuses consent it would be helpful if, unless the reason is self-evident, he were to state succinctly why he has refused and also why he is not prepared to pay the rental arrears or at least the current rentals. A similar approach should be adopted by the administrator when secured creditors seek his consent to enforce their security. It should not be necessary, therefore, for the Companies Court to be swamped with applications under section 11, or for administrations to be subjected regularly to the expense and disruption of such applications. Should it become necessary for a lessor or owner of goods or the owner of a security to make an application to the court, the court has ample powers, by making orders as to costs and giving directions to the administrator, either as its own officer or as envisaged by section 17, to ensure that the applicant is not prejudiced by an unreasonable decision of an administrator."

In the present case the consent of the administrator was sought by letter dated 14 April 1999 and refused on the following day without reasons. These reasons, however, appear from the affidavits, the correspondence and the minutes of the meetings of creditors.

The Court of Appeal in the Atlantic Computer Systems case at [1992] Ch 535 and following, set out a number of factors which were thought on the facts of that case to be of importance in the exercise of the discretion under the English equivalent of s.440C. These factors are usefully discussed in the Australian context in Robinson's article to which I have already referred and I will not prolong this judgment with a recital of them. I bear in mind that the discretion under s.440C is given to the court without qualification and it would not be appropriate for the court to set out, even as guidelines, a list of matters which might fetter its exercise. See Leighton Contractors Pty Ltd v Kilpatrick Green Pty Ltd [1992] VicRp 83; [1992] 2 VR 505 at 512-3, per Fullagar J (Ashley J concurring), and at 521, per McGarvie J. Although the English legislation is in terms different from Part 5.3A, the problems and conflicts which it seeks to address are familiar to practitioners working within the Australian regime. The factors mentioned by Nicholls LJ in the Atlantics Computer Systems case, or some of them, have been treated as important in Australia in Hamilton v National Australia Bank Ltd (1996) 66 FCR 12 at 32, per Lehane J, an application under s.444F to restrain a secured creditor from realising an asset in the face of a proposed deed of company arrangement. It may be, however, that the attitude of the court to the resolution of these problems and conflicts will differ depending on whether they arise in the implementation of an executed deed, in an application under s.444F(1)(b), or before the creditors have resolved that a deed be executed, in an application under s.440C or s.444F(1)(a). In the latter case the restraint is only temporary. It is clear, however, that it is for the lessor wishing to take possession to satisfy the court on an application under s.440C that this is the appropriate course. It may be appropriate where it is shown that the taking of possession will not in any practical way affect the availability of the options which the creditors must consider or their decision on those options. This, in effect, was the position adopted by the applicant before me.

On behalf of Permanent Trustee it was put that the interests of the lessor were more compelling than those of the Company or its creditors. Permanent Trustee had negotiated an agreement with a new tenant and that tenant was waiting to take possession and ready to carry out substantial renovations to the premises. To refuse the relief sought would be to impose a hardship on the landlord and the proposed tenant. The force of this submission is somewhat diminished by the fact that these negotiations with the proposed tenant were undertaken, or at least consummated, at a time when the attitude of the administrators was known. And knowing this attitude, Permanent Trustee delayed bringing this application until 17 June, two months after the refusal of consent. I interrupt myself to note that the reason given on that date for the urgency which, I was told required the making of an order under s.440C forthwith was an apprehension that a deed of company arrangement might be proposed at the meeting of creditors to be held later that day. An examination of the scheme of Part 5.3A shows that, far from being a reason for granting the leave sought, the imminence of the creditors' meeting and the prospect that they might be asked to consider a proposal for a deed of company arrangement, was a powerful reason not to disturb the status quo. The intention of the legislation is that creditors should be given every opportunity to consider such a proposal and s.440C is to prevent the lessor from pre-empting their decision by disturbing the company's possession of premises which may be essential to the success of the proposal contained in the deed.

For the administrators it was put that the making of the orders sought would inevitably produce the result that the Company would be placed in liquidation, the business lost and the creditors would lose such return as they might obtain from the sale. It is clear from the circular to creditors dated 9 June 1999 that the administrators recommended to them that they resolve that the Company execute a deed of company arrangement which would involve the assignment of the lease to a purchaser either immediately or later and, in the interim, to trade on under the control of a deed administrator in the expectation of dividends being paid to the creditors out of trading profits. This, it was said, would fulfil the intention of the legislation as expressed in s.435A.

These considerations point to a refusal of the application so that the creditors might have the fullest opportunity to consider their options under s.439C. I am mindful that this decision must now be made within a period of only six days. Subject to their decision and to s.444D(3), Permanent Trustee may thereafter be free to exercise its rights to possession without constraint.

It was put finally for Permanent Trustee that, even such a delay would be fruitless because it, and presumably Freehills, would vote against any resolution which involved its being deprived of possession. Even if the resolution were carried, it would not then bind Permanent Trustee: s.444D(3). Counsel for the administrators submitted that this was not a consideration which should weigh heavily. If this occurred, application might be made to the court under s.444F(4). Upon such an application the burden lies on the applicant to satisfy the court that it is appropriate that the lessor not take possession of the property. Material before the court on such an application may be different from that relevant to the present application. The terms of the deed would be then before the court. On the application presently before me no material or argument was directed to the question of the protection of the interests of Permanent Trustee in such an event. What is known, however, is that the lease is at an end. Any proposal which permits the Company to remain in possession must impose upon the lessor a tenant which it does not want and upon terms which may be unacceptable. The course proposed by the administrators involve, sooner or later, an assignment to a purchaser of a term which does not now exist and which the lessor refuses to grant. Finally, the proposal if implemented would remove from the lessor the prospect of payment by N'Joy of a substantial sum towards the refurbishment of the premises.

Doubtless these are all matters which will fall to be fully discussed and assessed by the creditors at the adjourned meeting. It is important in my mind that they be given the opportunity to do so, as Part 5.3A contemplates. It is the creditors and not the court who are to determine the future of the Company. If in the end they conclude that no good purpose is to be achieved from the proposed deed they will reject it. In that case no serious hardship will be caused to Permanent Trustee or its proposed tenant by the few days' delay in obtaining possession. If they favour the proposal and Permanent Trustee maintains its present position, it will be for the court upon proper material to determine whether the lessor should be bound by it.

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