Ability of liquidators to disclaim leasehold interests

The Victorian Supreme Court has handed down a judgment which focuses on the disclaimer of property by liquidators. Re Willmott Forests Ltd [2012] VSC 29 dealt with the question of whether the liquidators of Willmott Forests Limited (WFL) could disclaim leases encumbering certain of WFL's land with the effect of extinguishing the lessees' leasehold estate or interest in the subject land.

Justice Davies held that the disclaimer of a lease under s568(1)(a) of the Corporations Act 2001 (Cth) by the liquidator of a landlord does not have the effect of extinguishing the lessees' proprietary interest in the land.

This case highlights that liquidators of landlord companies are not able to disclaim leasehold interests in the relevant land in order to effect an unencumbered sale of the asset. This is so even where an unprofitable lease has onerous conditions, because disclaimer of the lease under s568 will not extinguish the lessee's proprietary interest in the land. Therefore, any sale of leasehold land by liquidators must be on an encumbered basis.

It should also be noted that the WFL liquidators have appealed this decision to the Court of Appeal and have sought an expedited hearing, so there may be some more law on the disclaimer of leases by a landlord soon.