Silvia, in the matter of Strongbuild Pty Ltd (Administrators Appointed) v... [2018] FCA 1957 | Case summary

The applicant, Norwest Flexi Pty Ltd, have leave to file in Court the Interlocutory Process and the affidavit of Andrew Hall sworn 29 November 2018.
The plaintiffs have leave to file in Court the affidavit of Felicity Healy sworn 30 November 2018.
The Interlocutory Process be returnable instanter.
The applicant be joined as a defendant to these proceedings.
Orders 1 and 2 of the Order of Justice Jagot dated 26 November 2018 be set aside insofar as they operate in respect of the registered real property lease of folio identifier 701/1000143 between Norwest Flexi Pty Ltd and Strongbuild Manufacturing Pty Limited commencing on 17 March 2016.
The plaintiffs pay the applicant's costs of and in connection with the Interlocutory Process.
The plaintiffs' costs of and in connection with the Interlocutory Process be payable out of the administration of the plaintiffs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

JAGOT J: 1 The administrators of the plaintiff companies applied for orders seeking to extend the time period under s 443B of the Corporations Act 2001 (Cth) by which the administrators were to notify the owners of property used or occupied by the companies of their intention not to exercise property rights before they would become liable for rent or other amounts attributable to the relevant period of use. By orders made on 26 November 2018 I granted the relief sought by the administrators, subject to liberty being given to the plaintiffs or any interested person to apply to vary the orders on three days' notice. 2 By way of interlocutory application dated 30 November 2018 and accompanying submissions and evidence, the landlord of a premises occupied by one of the plaintiff companies, Norwest Flexi Pty Ltd, exercised the liberty to vary the orders of 26 November 2018. 3 To the extent relevant s 443B of the Corporations Act is in these terms: (1) This section applies if, under an agreement made before the administration of a company began, the company continues to use or occupy, or to be in possession of, property of which someone else is the owner or lessor, including property consisting of goods that is subject to a lease that gives rise to a PPSA security interest in the goods. (2) Subject to this section, the administrator is liable for so much of the rent or other amounts payable by the company under the agreement as is attributable to a period: (a) that begins more than 5 business days after the administration began; and (b) throughout which: (i) the company continues to use or occupy, or to be in possession of, the property; and (ii) the administration continues. (3) Within 5 business days after the beginning of the administration, the administrator may give to the owner or lessor a notice that: (a) specifies the property; and (b) states that the company does not propose to exercise rights in relation to the property; and (4) Despite subsection (2), the administrator is not liable for so much of the rent or other amounts payable by the company under the agreement as is attributable to a period during which a notice under subsection (3) is in force, but such a notice does not affect a liability of the company. (5) A notice under subsection (3) ceases to have effect if: (a) the administrator revokes it by writing given to the owner or lessor; or (b) the company exercises, or purports to exercise, a right in relation to the property. 4 I am persuaded by the submissions for Norwest that the ex parte orders I made should be set aside to the extent that they affect Norwest as lessor. 5 Although I accept that all of the provisions of Pt 5.3A of the Corporations Act are to be construed having regard to the relevant objects set out in s 435A, namely to provide for the business, property and affairs of an insolvent company to be administered in a way that maximises the chances of the company or as much as possible of its business continuing in existence, I consider that the statutory scheme which is established by s 443B of the Act contemplates that where a decision has already been made by the administrators that it is in the interests of the company to continue to occupy and use premises (as has occurred in the present case), then the rent should be paid to the lessor in the ordinary course. 6 The administrators referred to a number of circumstances said to support the exercise of discretion to extend time for the giving of the notice under s 443B, namely, that there is no evidence that Norwest has a prospective tenant, that there is no evidence as to the steps that Norwest would take if the notice period was not extended and the administrators gave notice under s443B of the Act, and that given the bespoke nature of the property (a large industrial site), it would be unlikely that it could readily be re-tenanted in the short-term. 7 However, the fact of the matter is that the administrators have said in the evidence that their intention is to: …continue to trade the business in a limited capacity until further notice so that the companies can be marketed for sale as a going concern and generate a better return for creditors. 8 While it is the position of the administrators that incurring liability at this early stage in the administration would place a prohibitive burden on the conduct of the administration and would severely limit their ability to trade the business and market it for sale as a going concern, as Norwest says, it is clear that they have already decided that it is in the best interest of creditors for them to continue to occupy and use the premises for a period of time at least. In those circumstances, I cannot see that it is an appropriate exercise of discretion to provide the administrators with the extension of time which is sought under s 447A of the Corporations Act. In my view, in these circumstances, the balance between the interests of Norwest as the landlord and of the unsecured creditors falls on the side of the landlord. 9 I consider this reasoning is supported by the observations in In the Matter of Mothercare Australia Limited (Administrators Appointed) [2013] NSWSC 263 at [4] where, in my view, Black J was saying that it may be that the administrators are unable to form a view within the five business day as to whether: …it was necessary or desirable to exercise rights over the relevant property for the purpose of maximising the chances that some or all of the members of the companies could continue in existence or maximising the return to creditors. 10 That is, his Honour was referring to a case in which the administrators have been unable to decide what should be done with the property for one or other reason. In the present case, however, what is clear from the evidence is that the administrators have decided what should be done with the relevant property albeit for what may be a confined period. To my mind, this is the key point of difference in the present case. 11 Further, in Rewards Projects Limited (Administrators Appointed) v the Ark Fund Limited [No 2] [2010] WASC 136 at [8] Master Sanderson said: …there is nothing in s 443B which requires consideration of the leases to be the sole or dominant purpose before an extension of time can be granted. Of course, it may be the case, in certain administrations, the lease position is simple and administrators within a very limited time would have a clear idea of the company's position in relation to those leases. Then it would be inappropriate to grant an extension of time under s 443B when all that was being done was to provide the administrators with time for purposes not associated with understanding the position with respect to leases. But that is not this case. I am satisfied that the evidence establishes the administrators have not fully ascertained the company's position with respect to the leases and a further extension should be granted. 12 As I have said, the facts of the present case are different. The administrators understand the lease and have decided what should be done in relation to the property at least for the interim period; namely, that they should continue to occupy and use the property. It is that factual circumstance which to my mind indicates that it would be an inappropriate exercise of discretion to grant the relief which the administrators sought. 13 I had granted that relief on an ex parte basis on 26 November 2018 on the basis that Norwest, which foreshadowed its intention to apply to set aside the orders, would have such liberty. Norwest has exercised the liberty by filing the interlocutory process today. The primary order Norwest seeks is that I set aside so much of orders 1 and 2 as made on 26 October as operates in respect of the Norwest property. 14 For the reasons I have given, I am persuaded I should make that order, and the associated orders. I certify that the preceding fourteen (14 numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot.

Silvia, in the matter of Strongbuild Pty Ltd (Administrators Appointed) v Norwest Flexi Pty Limited

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