Deeds of Company Arrangement and Leases

A recent case in the Supreme Court of New South Wales highlights care that administrators and lessors of properties need to take when considering the terms of any Deed of Company Arrangement.

In the case in question, a company was in voluntary administration. A Deed of Company Arrangement was entered into and the terms of the Deed of Company Arrangement assumed that the company in administration would continue to occupy the premises that it occupied as at the date of the Deed of Company Arrangement for the future conduct of the business of the company.

The court examined very carefully a number of terms in the Deed of Company Arrangement including “creditor’s claim”, “creditor” and section 444D of the Corporations Act.

The company subject to the Deed of Company Arrangement argued that the lessor of the property was not entitled to terminate the lease on the basis that the language of section 44D of the Corporations Act covered the same persons who would be entitled to prove in a winding up of the company in accordance with section 533 of the Corporations Act, that where a lease is entered into before the date specified in the Deed of Company Arrangement as the day on before which claims must have arisen if they are to be admissible under the Deed, and the Deed of Company Arrangement has the effect of extinguishing the landlord’s claim for future rent and, and finally that the Deed of Company Arrangement extinguished the landlord’s claim for certain “Make Works payment”.

The court dismissed the company’s claim and held that the landlord was entitled to terminate the lease which, on basis that the Deed of Company Arrangement was entered into on the assumption that the company would continue to occupy the leased premises obviously could have a substantial effect on the continued operation of the Deed of Company Arrangement.

The case clearly demonstrates that there is a need for lessors to carefully examine the terms of a Deed of Company Arrangement and also for administrators, and persons promoting a Deed of Company Arrangement, to carefully consider the language of the Deed of Company Arrangement and the practical consequences of a company which is subject to a Deed of Company Arrangement being deprived of the premises upon which the company conducts a business.