Personal liability for rent and other amounts payable under an agreement

Personal liability is an issue which all receivers and administrators and mortgagees in possession pay great attention to. Section 443B(2) (for administrators) and section 419A(2) (for receivers and mortgagees in possession) imposes personal liability for 'rent or other amounts payable under [an] agreement' where the company continues to use, occupy or be in possession of property.

Since the decision of Justice Campbell in Re Nardell Coal Corporation (In Liq) v Hunter Valley Coal Processing [2003] NSWSC 642, practitioners and mortgagees have been quite relaxed about the scope of the 'other amounts payable under [an] agreement' for which they might be personally liable. In Re Nardell, Justice Campbell stated that the words 'other amounts' referred only to liabilities under a property contract akin to 'rent' and in doing so he greatly limited a controller's liability under s419A(2).

In Rapid Metal Developments (Aust) Pty Ltd v Rildean Pty Ltd (No 3) [2010] NSWSC 7 Justice Hulme has changed that. In this case Justice Hulme held that the words 'rent or other amounts payable' should be 'understood by their ordinary meaning in the context in which they appear'. As a result, insolvency practitioners may now be liable under s443B(2) and s419A(2) for a much wider range of costs under a lease or other property contract and not just those similar to rent.

Justice Hulme considered the liability of agents for a mortgagee in possession, the Agents, under s419A(2) of the Corporations Act 2001 (Cth) for three amounts owed by the mortgagor under a contract with the owner: those amounts were unpaid hire charges for scaffolding, interest on those charges and the value of the unreturned scaffolding. His Honour held that the Agents were liable to the owner for all three amounts.

In this case, Justice Hulme rejected the Nardell Coal narrow interpretation of the s419A(2) phrase 'rent or other amounts payable'. If this case is followed a controller's liability under s419A(2) of the Corporations Act may be interpreted broadly: in particular, this case shows that a company to which a controller is appointed will not necessarily need to be in possession of a third party's property for the court to find that a company has continued 'to use' that property under s419A(2). In such circumstances, a controller may still be liable under that section for 'rent or other amounts payable' arising under a property contract.