The Federal Court has ruled that Colette by Colette Hayman, under administration, doesn’t have to pay $648,923 owing in rent until the coronavirus crisis passes.
The court cited the “difficult and unpredictable environment” the administrators have found themselves in as a result of the COVID-19 pandemic, as the chief reason behind its decision.
According to court documents, Colette’s Deloitte administrators requested a 100 per cent rent reduction from the landlords until a new buyer is found or, if a sale is not achieved, until the operations of the Colette Group are wound down.
However, the administrators were only offered a 9 per cent rent reduction across the total Australian store portfolio so that the fortnightly rent payable was $648,923, reduced from $714,827.
The administrators argued to the court that paying the rent will substantially deplete the Colette Group’s cash resources which will diminish the return available to creditors and potentially undermine the future sale or recapitalisation process.
They also underlined that it would be in the interest of the landlords if they grant Colette a reprieve on rent.
“It is unlikely that the landlords will be able to re-lease the premises for the period covered by the orders sought in any event and, should the business be revitalised after ‘mothballing’, it may well be that any outstanding amounts form part of the lease renewal negotiations,” one of the administrators, Deloitte partner Sam Marsden, told the court.
Mr Marsden added that if the court was to postpone the rent, the landlords would become unsecured creditors for the accrued rental amounts for the period covered by the orders sought.
Judge Brigitte Markovic subsequently ruled that the administrators would not be liable for the rent owed on the 93 stores due between 1–14 April, and that they are justified in not making the companies in the Colette Group pay that rent.
“The administrators find themselves operating the Colette Group in an ever-changing environment brought about entirely by external factors. They need to be agile and able to react to the interests of a number of stakeholders,” Judge Markovic said.
Under the Corporations Act, courts are able to make orders that will maximise the chances of an insolvent company to continue to exist or to provider a better return to its creditors.
The judge also weighed up whether the decision would unfairly prejudice landlords, but ultimately determined that they would be no worse off than if the stores were vacated.
Colette by Colette Hayman entered administration in early February, prior to the commencement of the coronavirus crisis in Australia. However, the administrators told the court that they had been progressing Colette’s potential sale or recapitalisation with 11 parties until 26 March.
“By the weeks of 9 and 16 March 2020, the administrators were still in discussion with a number of parties; however, those parties were starting to express concern about COVID-19-related impacts on the business,” the court heard.
“And by 25 March 2020, all interested parties had withdrawn from the process.”
Mr Marsden disclosed, however, that based on feedback at the time of their withdrawal, the administrators believe several parties will recommence talks once the COVID-19-related market uncertainty has subsided.