23 June 2023
In Vincent Cold Storage Pty Ltd v Centuria Property Funds No 2 Limited (No 2) [2023] VSC 314, the Deed Administrator sought section 444F orders to restrain the property owner from retaking premises leased by Vincent Cold Storage in administration and was unsuccessful.
The Deed Administrator of cold storage company Vincent Cold Storage Pty Ltd (VCS) made an application to the Victorian Supreme Court to stop the owner of premises the company occupied from re-taking possession during the DOCA period. VCS was many months in arrears and had been occupying the premises as a trespasser since the owner’s unsuccessful attempts to retake possession.
The Court considered the statutory factors and decided in favour of the owner as its interests would not be adequately protected otherwise even though the owner retaking possession would make the DOCA’s success unlikely as there were no immediately available appropriate alternative facilities to which the company could be relocated.
The decision in Vincent Cold Storage Pty Ltd v Centuria Property Funds No 2 Limited (No 2) [2023] VSC 314 concerns occupation of a warehouse and storage facility owned by Centuria Property Funds No 2 Limited (Centuria) in Keysborough, Victoria (Premises). Vincent Cold Storage Pty Ltd and related party Vincent Transport Services Pty Ltd (in Liquidation) were tenants for a five-year term from 1 December 2019.
Centuria terminated the lease on 27 October 2022 for non-payment by the tenants over a six-month period and effected re-entry. In response, the tenants sought to restrain the owner re-taking possession by summons seeking injunctions and relief from forfeiture.
In the course of the hearing, Centuria offered an undertaking not to retake possession of the Premises for a period to permit the tenants to vacate the premises and remove the perishable stock on site in an orderly fashion. The injunction was refused but relief from forfeiture was granted on the condition that arrears would be cleared and rent and outgoings as per the lease would be paid for the period of occupation.
At the return hearing, the tenants had not complied with any payment obligations and had taken no steps to vacate the Premises. The relief against forfeiture application was dismissed on this account. Mere hours before the return hearing, Stephen Robert Dixon was appointed as voluntary administrator of VCS. Mr Dixon entered into a licence agreement with Centuria in respect of the Premises to terminate on the end of the administration with provisions for license fees, occupation rights and return condition obligations (Licence).
The company voted to enter into a DOCA at the second meeting of creditors to allow VCS to continue as a going concern, consequently it contemplated VCS continuing to occupy the Premises until it was able to find an appropriate alternative.
Centuria voted against the DOCA and informed the administrator that it intended to retake possession immediately as execution of the DOCA is the end of the administration, in line with the Licence terms. When Centuria’s agents attempted to physically retake possession, access was denied by VCS and VCS remained in possession as a trespasser. Accordingly, Centuria applied for orders for possession and the deed administrator sought orders pursuant to section 444F(4) of the Corporations Act 2001 (Cth) (Act) that subject to VCS complying with certain conditions, Centuria would not take possession of the premises for a specified period.
Section 444F(4) of the Act allows a court to limit rights of a lessor of property occupied by a company subject to DOCA. A court must be satisfied of the factors in 444F(5) before making the orders sought and these factors are typically satisfied by making the orders subject to conditions per section 444F(6).
The statutory factors in 444F(5) are:
The deed administrator proposed the conditions that VCS needed to comply with, including:
The key features for the assessment in section 444F(5) are considered in Strazdins v Birch Carroll & Coyle Ltd (2009) FCR 300 (Strazdins) at [130]-[133], [147]. The onus of establishing both subsections is on the administrator.
Osborne J decided granting the orders would have a materially adverse effect on achieving the DOCA purposes, in effect, because of the lack of available alternative facilities to relocate the business as a going concern. Evidence from real estate agents was received that the earliest available appropriate facility was between 12-18 months away as it was under construction. Accordingly, Centuria retaking possession would make it impossible for VCS to continue as a going concern and make contributions under the DOCA.
However, despite a finding in favour of VCS on the material adverse effect point, Osborne J ultimately decided the orders would not be made by applying the reasoning in Strazdins. This is because the conditions proposed by the deed administrator would not adequately protect Centuria’s interests as an owner of the Premises otherwise entitled to immediate possession.
The Court’s analysis in Strazdins compared the conditions proposed to the interests that the owner had under the Lease prior to its termination. In the VCS case, the conditions proposed were vastly different and inferior to the rights of Centuria under the Lease, and the known facts demonstrate the additional risks Centuria would be subject to, namely:
The conclusion was: Centuria’s interests were not adequately protected by the imposition of a mostly uncertain arrangement which required it to continue to suffer the presence of a defaulting and insolvent occupier who appeared to have a quite unrealistic understanding of the circumstances which attend its occupancy of the Premises. Discretionary factors were also considered by Osborne J which also pointed towards refusing the section 444F(4) orders sought by the deed administrator.
This decision is indicative of the level of detail courts will consider when weighing up the respective rights of the owner of premises and a company subject to a DOCA in an application to restrain the owner’s rights to possession. In making such an application, odds of success improve if:
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Head of Restructuring, Insolvency and Special Situations