Federal Court orders Colette COVID-19 rent reprieve

By 15 April, 2020 April 28th, 2020 No Comments

In a recent decision handed down in the Federal Court of Australia, Markovic J ordered that the Administrators of the collapsed fashion retailer Colette Group are justified in causing the companies in the Group not to meet their rental obligations which have accrued up until close of business on 14 April 2020. The rental obligations, for which the Administrators were also deemed not to be personally liable for, span across 93 retail stores and comprise almost $650,000.

In what may be a decision to open the proverbial floodgates for rent relief measures awarded to commercial and retail tenants, Markovic J agreed with the arguments offered by the Administrators in that:

  1. it was clear that varying the rental arrangements whilst the effect of “extraordinary” COVID-19 circumstances continued to evolve is in the interests of the Group’s creditors as a whole and consistent with the objectives of Part 5.3A of the Corporations Act 2001 (Cth);
  2. the arrangements may at a future point enable the Group’s business to trade for the benefit of its creditors; and
  3. based on various modelling conducted by the Administrators, the method of ‘mothballing’ the businesses followed by a period of trading and then sale is likely to realise the most value for the Group’s businesses and therefore is in the interests of creditors as a whole.

In respect of making the orders, Markovic J carefully weighed up the prejudice that would be suffered by the various landlords if the rental obligations were frozen for a period of time. Ultimately, it was determined that the landlords would be in no worse position if the orders sought were not made than they would be if the stores were vacated – given it was unlikely the landlords would be able to re-lease the premises in the current circumstances.

Please feel free to reach out to our property experts Jason O’Meara or Aaron McDonald if you need advice with respect to a commercial or retail tenancy in the wake of COVID-19.

Read the full judgment here.

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