27 July 2025
6 min read
#Corporate Restructuring and Insolvency, #Dispute Resolution & Litigation
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When a retail tenant enters voluntary administration, it creates a complex situation for landlords because the landlord’s usual rights are restricted. Separately from the various tenant protections contained in retail leases legislation, the Corporations Act 2001 (Cth) the Act, prescribes how administrations are conducted, which places limits on landlords’ rights.
Administration is a process where a company which is, or is likely to become, insolvent appoints an insolvency practitioner – known as an administrator – to take full control of its affairs. It allows the company’s directors or third parties time to find a way to save the business from being liquidated.
Once appointed, the administrator is responsible for reporting to the company’s creditors, who will then determine whether:
During an administration, the administrator has control of the company’s business, property and affairs. They may continue operating the business, manage the property, terminate or dispose of the company’s assets (including property), and carry out any duties or functions the company and its directors could have exercised.
Many retail and commercial leases contain a clause which states that a default event occurs if a tenant is placed into administration or liquidation, thereby allowing the landlord to terminate the lease. However, it is important to note that despite what the lease might say, the appointment of administrators to a tenant does not give the landlord an immediate right to terminate the lease, nor does the administrators’ failure to operate the business from the leased premises give rise to such a right.
Under section 440B of the Act, a landlord is unable to re-enter the leased premises during the administration of a company, unless the administrator has consented in writing or the landlord obtains leave of the Court.
Under section 443B(3) of the Act, an administrator may issue a notice to the landlord within five business days of their appointment, stating that the company does not intend to exercise rights in relation to the leased premises. If such a notice is given, the administrator is not personally liable for rent and the landlord may take possession of the premises. The company may still occupy the premises (eg. leaving goods in situ) during the administration without incurring liability.
If the administrator chooses to continue operating the business from the leased premises, section 443B(2) of the Act provides that they are personally liable for rent and other amounts payable under the lease for the period which begins more than five business days after the administration began and while they continue to occupy the premises and the administration continues.
The administrators may apply to the Court to extend the period in which they will not be personally liable to pay rent (known as the ‘standstill period’), even if the business continues to trade. The Federal Court has decided that while the administrator is excused from being personally liable, the rent and outgoings which accrue during a standstill period will be payable as a priority expense in the administration or subsequent liquidation of the insolvent tenant. This applies irrespective of whether the standstill period is extended.
Two creditors’ meetings must be held during an administration. The first meeting occurs within eight business days after the commencement of the administration. Its purpose is to decide whether to appoint a committee of inspection and whether the administrator should be replaced. The second meeting occurs after the administrator has concluded their investigation into the company’s affairs, which generally happens five to six weeks after the administrator’s appointment, sometimes longer if needed.
A report to creditors must be provided before the second meeting, together with the administrator’s statement on which option they believe is in the best interests of creditors. Creditors will then be given the opportunity to vote on the company’s future.
When dealing with tenants in administration, landlords should keep the following considerations in mind:
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Disclaimer
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.
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