Trespassers beware! NSW Supreme Court confirms contravention of section 440B of the Corporations Act 2001

For over 150 years, the Camelia Grove Hotel in inner-city Sydney has been offering hospitality to the locals. A terrace is used for an outdoor eating area, the Hotel’s bottle shop and food storage. Behind the familiar exterior of a local pub lies interrelated companies in administration, a fight over access, and a robust testing of section 440B of the Corporations Act 2001 and the exercise of third party property rights (Re Camelia Grove Operations Pty Ltd (No 2) [2024] NSWSC 1383; Emma Beechey appeared for Vaughan Strawbridge and Joseph Hansell of FTI, the Hotel Receivers, who appeared on the application as interested parties, represented by Clayton Utz).

The Battle for the Camelia Grove Terrace

Camelia Grove Operations Pty Ltd (CGO) and Public Lifestyle Management Pty Ltd (PLM) (both receivers and managers and administrators appointed) are the licensee and manager respectively of the Camelia Grove Hotel. The freehold is owned by 146 Henderson Pty Ltd (receivers and managers appointed and administrators) (146 Henderson) (together, the Companies). The Hotel used and occupied the Terrace, which is immediately adjacent to the Hotel property and owned by another company, 152 Henderson Pty Ltd (receivers and managers appointed).

On 13 September 2024, Duncan Clubb and Andrew Sallway of BDO were appointed as voluntary administrators of CGO, PLM and 146 Henderson. The Hotel Receivers were appointed as managers and receivers over the assets and undertaking of those same entities on the same day. Andre Lakomy had been appointed receiver and manager of 152 Henderson but was retired. During Mr Lakomy’s time as receiver of 152 Henderson, the Administrators had asserted 152 Henderson was prevented by section 440B of the Corporations Act from taking possession of the Terrace during the administration period.

The 152 Receivers were appointed as receivers and managers of the assets and undertaking of 152 Henderson on 17 October 2024 and promptly made aware of the application of section 440B of the Corporations Act to the Companies’ use and occupation. Following their appointment, the 152 Receivers instructed a contractor to erect a wire fence to prevent access from the Hotel to the bottle shop section of the Terrace, post a notice of possession and change the locks of the doors of the Terrace. This was done on 19 October 2024, without consent of the Administrators or leave of the Court.

On 21 October 2024, the Administrators commenced proceedings for urgent injunctive relief, seeking orders restraining the continued obstruction of access to the Terrace. Justice Black granted an interim injunction on 22 October 2024, finding that the “aggressive approach” taken by 152 Receivers led to a seriously arguable, and potentially strong, case that the 152 Receivers had contravened section 440B of the Corporations Act (In the matter of Camelia Grove Operations Pty Ltd, Public Lifestyle Management Pty Ltd and 146 Henderson Street Pty Ltd [2024] NSWSC 1342).

Final hearing: key reasons for letting the companies back into the Terrace

At the final hearing on 29 October 2024, the 152 Receivers and 152 Henderson argued that:

• it had not been established specifically which of the three Companies had used the parts of the Terrace for the Hotel’s business and therefore a breach of section 440B could not be established;
• the Hotel Receivers did not need to use the Terrace in operating the hotel, as there was no basis to conclude that any profit from trading the Hotel during administration would have affected the companies' overall net asset position, given their insolvency;
• the sale of the Terrace alongside the Hotel to maximise returns should involve the 152 Receivers in setting the appropriate realisation strategy to ensure proper compensation for 152 Henderson for the Terrace’s rental or freehold value;
• there was no reason to believe that temporarily ceasing trade during administration would affect the options creditors of CGO and PLM could consider at the second meeting; and
• enjoining them from recovering possession of the Terrace was futile, as the mortgagee of the Terrace, GI 377 Pty Ltd, could take possession.

Justice Nixon granted a final injunction, restraining 152 Henderson and the 152 Receivers from taking any action to prevent CGO and PLM from using or accessing the Terrace, and denied 152 Henderson leave to take possession of the Terrace pursuant to section 440B(2) of the Corporations Act, on the condition that the Hotel Receivers pay the determined sum of market rent. In declaring that section 440B of the Corporations Act had been contravened, Justice Nixon found that:

• 152 Henderson and the 152 Receivers breached section 440B of the Corporations Act when they impeded access to the Terrace used and occupied by the Administrators and Hotel Receivers without consent of the Administrators or leave of the Court;
• it was unnecessary to determine which of CGO or PLM used and occupied specific parts of the Terrace or for what purpose given that CGO and PLM were jointly operating the Hotel and there was no other entity using or occupying the Terrace. The bottle shop operated under CGO’s liquor licence, covering both the Hotel and Terrace, and PLM employed all the staff; additionally, a joint insurance policy named both CGO and PLM for the premises at 146-250 and 152 Henderson Street;
• the 152 Receivers did not require possession of the Terrace in order to be involved in the realisation strategy;
• the 152 Receivers were not entitled to leave under section 440B of the Corporations Act to take possession of the Terrace. In reaching this decision, the Court considered the objective of Part 5.3A of the Corporations Act: to maximise the company’s chances of survival or, if that is not possible, ensure a better return for creditors than immediate liquidation. The Terrace was integral to the Hotel’s operations, and the focus of ongoing trading during administration was to facilitate the sale of the Hotel as a going concern. Granting leave would have undermined this object, potentially hindering the Hotel’s sale as a viable business; and
• it was unnecessary to determine whether the mortgagee could take action concerning the Terrace consistently with section 440B of the Corporations Act.

Key takeaways of the decision

This decision affirms that parties seeking to enforce ownership interests against a company under administration using or occupying property must obtain consent from the administrators or leave from the Court, otherwise they risk contravening section 440B of the Corporations Act. To have the benefit of section 440B of the Corporations Act, there is no requirement that any formal lease be in place, or even for a specific company to be identified as being the entity using or occupying the property.