CORPORATIONS ACT 2001 – SECTION 443B
Payments for property used or occupied by, or in the possession of, the company
Owners, lessors and financiers of property used by companies in administration rely on section 443B of the Corporations Act to obtain payment for the use of that property during the administration period. This section makes the administrator personally liable for some of these payments. After 13 years, this section can still be the source of confusion. Some of those issues are discussed in this article.
The section reads:
(1) This section applies if, under an agreement made before the administration of a company began, the company continues to use or occupy, or to be in possession of, property of which someone else is the owner or lessor.
At first glance the section only applies to agreements where the item is owned by someone else or leased by the company. The most obvious are equipment or premises leases. But, the section has a wider range and it is not necessary that the property be owned by another or leased. Personal liability comes from subsection (2).
(2) Subject to this section, the administrator is liable for so much of the rent or other amounts payable by the company under the agreement as is attributable to a period:
(a) that begins more than 7 days after the administration began; and
(b) throughout which:
(i) the company continues to use or occupy, or to be in possession of, the property; and
(ii) the administration continues.
The administrator becomes liable for rental or other such payments after the initial 7 day period, if the company continues to use, occupy or be in possession of the property. Simply ceasing to be in possession of or using the property should then remove that liability. If the administrator does not wish to keep it and wants to remove personal liability, they will issue a notice under subsection (3).
One important point is that this liability ends with the administration, usually with either the winding up of the company at the second meeting, or the signing of a Deed within 21 days after the second meeting. It also ends if a receiver or chargee takes control of the asset.
(3) Within 7 days after the beginning of the administration, the administrator may give to the owner or lessor a notice that specifies the property and states that the company does not propose to exercise rights in relation to the property.
(4) Despite subsection (2), the administrator is not liable for so much of the rent or other amounts payable by the company under the agreement as is attributable to a period during which a notice under subsection (3) is in force, but such a notice does not affect a liability of the company.
Subsection (5) ceases the effect of the notice if the company re-exercised a right in relation to the property.
What is possession? At times an administrator will issue the appropriate notice allowing the financier to collect the item, but it will take some days for it to be collected. Is the administrator still liable during this period? No, not if possession is something that the administrator cannot avoid and he or she is not using the item.
(6) For the purposes of subsection (5), the company does not exercise, or purport to exercise, a right in relation to the property merely because the company continues to occupy, or to be in possession of, the property, unless the company:
(a) also uses the property; or
(b) asserts a right, as against the owner or lessor, so to continue.
An example of this would involve an large piece of equipment leased by the company. The equipment cannot be removed when the company issues the notice. It will remain in the company premises for a period. Unless the company uses the equipment or tries to exercise some right over the equipment, the administrator will not be liable for the rental. Storing the item while it awaits collection does not equate to possession.
Another example is a landlord that tries to maintain personal liability of the administrator because financed, secured or abandoned assets are left in the premises when the administrator vacates. The test is whether the administrator is in actual occupation, or is trying to maintain a right to the premises. If neither, the administrator has vacated and personal liability ceases.
We will explore more of these issues in later newsletters.