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Disclaiming a Lease under s568 – Willmott goes to the High Court

The High Court recently granted special leave to appeal, and will now revisit the Victorian Court of Appeals decision in, Re Willmott Forest Limited1 and the extent to which a liquidator of a lessor company can, pursuant to section 568 of the Corporations Act, disclaim a lease.

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Robert Mills, Partner
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The effect of the Court of Appeal judgment was that under that section, the liquidator of the lessor could extinguish the lessee's leasehold interest in the leased property.
On the special leave application, the High Court was concerned with the intent of the legislation and in the course of argument queried whether in circumstances where the lessee had paid for its lease so that that the lessee had acquired an accrued right to the land, the legislation could go so far as to:

  • operate as an expropriation of the accrued property rights of the lessee
  • permit the lessor company, or its liquidator, to disclaim someone else's property.

These issues were raised in the context of the statement that "Parliament could not authorise by legislation, legislation which gives a power to effectively acquire someone else's property".

Read against that background, it would appear from the transcript that the High Court is struggling to accept that the statutory right of disclaimer could go as far as the Court of Appeal had concluded.

Interpretation of the PPSA should follow NZ and Canadian Authority

In the Matter of Maiden Civil (P & E) Pty Ltd [2013] NSWSC 852 confirms that:

  • the rights of a lessee in leased goods are not, under the PPSA, merely possessory rights
  • the lessee's rights include rights of ownership in the leased goods
  • those rights may be sufficient to permit a secured creditor of the lessee to acquire rights in the leased goods
  • the secured creditor's rights in the leased goods may have priority over the lessor's/owner's rights.

In Maiden Civil, Brereton J also confirmed that a dispute as to the competing security interests in such circumstances cannot be resolved through the determination of who has title to the collateral because the dispute is one of priority and not one of ownership.

Accordingly, in Maiden Civil, and by reference to the priority regime in section 55 of the PPSA, the secured creditor's perfected security interest had priority over the lessor's/owner's unperfected security interest.

Significantly also, Brereton J had regard to a number of NZ and Canadian decisions and said that because, when enacting the legislation, Parliament had modelled the PPSA on equivalent legislation in NZ and Canada, Parliament "should be taken to have intended the same approach, which was by then well-established in Canada and New Zealand, to apply."


Rob Mills, Adelaide +61 8 8414 3302
Charles Bavin, Sydney +61 2 9391 3010
Mary Nemeth, Partner, Melbourne +61 3 8602 9258

1 Re Willmott Forest Limited [2012] USCA 202 (29 August 2012)


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