Author

Heather Collins

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In the matter of Bar Machiavelli Pty Ltd (Administrator Appointed) [2018] NSWSC 1395

Background

  • Bar Machiavelli Pty Ltd (Administrator Appointed) (Tenant) operated a bar and restaurant business under the name Bar Machiavelli from the leased premises.
  • In June 2018 the sole director of the Tenant appointed a voluntary administrator to the Tenant.
  • Two parties put forward proposals for deeds of company arrangement (DOCA proposals).
  • Each DOCA proposal involved an assignment of the lease to the proponent.
  • The voluntary administrator considered one DOCA proposal to be more advantageous to the other but was unable to recommend that DOCA proposal to the creditors because the landlord would not consent to assign the lease to that proponent.
  • An application was made to the court for an order the landlord consent to the assignment of the lease to the proponent with the more advantageous DOCA proposal (PPB).
  • The landlord did not consent to the assignment to PPB on the basis that it considered the financial resources and retailing skills of PPB to be inferior to those of the Tenant.

What you need to know

The Court of Appeal – Supreme Court of Western Australia has confirmed that the existence of a general security interest does not of itself destroy mutuality between a company in liquidation and its creditors and as a consequence section 553C of the Corporations Act 2001 (Cth) (Corporations Act) can apply to allow a creditor to set-off its debts against amounts owed to the company in liquidation.

In a comprehensive unanimous decision, the Court of Appeal confirmed the following propositions:

  • Section 553C of the Corporations Act operates to the exclusion of any contractual and equitable rights of set-off held prior to the commencement of liquidation.
  • In the alternative, if mutuality is destroyed by the existence of a general security interest in debts or claims, then section 553C does not prevent a party from claiming set-off pursuant to existing contractual or equitable rights.
  • In accordance with section 80(1)(a) of the Personal Property Securities Act 2009 (Cth) (PPSA), a financier with a general security interest will take its interest subject to the terms of the contracts and any equity, defence, remedy or claim arising in relation to the contract.