Justice Markovic of the Federal Court has recently granted voluntary administrators from Deloitte a short-term waiver from personal liability for rent in the administration of the Colette clothing group – see Strawbridge (Administrator), in the matter of CBCH Group Pty Ltd (Administrators Appointed) (No.2) [2020] FCA 472.

What Happened

Collette fashion and retail group were placed into voluntary administration on 31 January 2020. In February the convening periods in the administrations were extended to various times in June 2020 respectively to allow restructuring and potential sale of the group. In March 2020, all stores (which weren’t permanently closed at the beginning of the administration) were closed for health reasons due to COVID-19.

The administrators retained the obligations on 93 stores which they considered strategically valuable to the group however had the issue of ongoing lease liabilities, an unstable negotiating environment in the context of COVID-19 and changing Government responses and and personal liability for the rent in the meantime.

Following detailed financial analysis, the administrators sought waiver from personal liability for lease and related expenses pursuant to s 447A of the Corporations Act 2001 (Cth) (Act) and s 90-15 of the Insolvency Practice Schedule (Corporate) (IPSC) to amend the operations of ss 443A and 443B of the Act.

What Was Decided

Justice Markovic of the Federal Court was satisfied that the orders sought were appropriate, and that the evidence and financial analysis supported order for amongst other things that:

  1. The Administrators were excused from personal liability for lease payments for 93 premises for 2 weeks until 14 April 2020;
  2. The matter was relisted to 15 April 2020; and
  3. The orders were again extended for 3 weeks to 6 May 2020.

In her Decision, her Honour said:

“[i]t was apparent that, notwithstanding the uncertainty faced by the Administrators brought about by the current situation, the Landlords are likely to be in no worse position if the order sought by the Administrators in para 5 of AOP was made than they would be if the stores were vacated.  While there is no certainty, if the order is made and the “mothballing” proceeds, there is at least a potential for the Landlords’ position ultimately to be improved.” (at [54])

Markovic J also stated:

“…that the Administrators currently consider, subject to their uncertainty as to the duration and extent of the impact of the COVID-19 pandemic, that “mothballing” is likely to realise most value for the Colette Group’s business.  This is because post COVID-19 they will have the option of undertaking a managed wind down or re-engaging with interested parties to facilitate a sale or recapitalisation through a DOCA.  It is therefore in the best interests of the creditors as a whole.” (at [25])…

I accept that the Administrators are unable to express any opinion with certainty in the current climate.  The difficult and unpredictable environment in which the Administrators are operating is the result of the COVID-19 pandemic.  It is not caused by any action or inaction on their part.  Despite that, I can and do give considerable weight to their views, arrived at after their own evaluation based on the information available to them at the time.” (at [48])

What does it Mean?

The key takeaways for this decision include:

  • Courts will now more than ever consider granting voluntary administrators flexibility in exploring restructuring options;
  • Rent free periods are not off the table; and
  • There is of course a need to balance stakeholder interests and the evidentiary burden is not insubstantial.

Read The Full JudgmentRight Here