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In its recent judgment involving the PAS Group of companies, the Federal Court held that rent payable by the PAS Group during an extension of the period in which an administrator had been excused from personal liability (Standstill Period) is an expense properly incurred by a ‘relevant authority in carrying on the company’s business’ and is therefore a priority debt under s 556(1)(a) of the Corporations Act 2001 (Cth) (Corporations Act).
The PAS Group is a fashion group with a large retail footprint of 161 stores. The administrators had successfully obtained an order for a Standstill Period of approximately three weeks. The administrators caused the PAS Group to continue to occupy and trade from all but eight of the retail stores during the Standstill Period and sought a declaration that the related rent was a merely unsecured debt or claim in the administration and was not entitled to priority under section 556(1)(a) of the Corporations Act. These orders were challenged by Scentre Management Limited, being the largest lessor of premises to the PAS Group.
In refusing to grant the declaration sought by the administrators, the Court emphasised that the leased premises were used by the administrators to actively trade the PAS Group on a “business as usual” basis so as to facilitate a going concern sale and to generate over $7 million in revenue. This conclusion was based on the Court’s affirmation of the Lundy Granite principle, namely, that rent in respect of premises leased by the company prior to liquidation but used or retained by a liquidator for the benefit of the liquidation is to be treated as an expense of the liquidation and paid in priority to all other unsecured debts. The Court held that the provisions of section 443B of the Corporations Act regarding an administrator’s liability do not affect either the Lundy Granite principle or the section 556 ranking of claims in a liquidation.
Consequently, it followed that in any liquidation of the PAS Group, the Standstill Period rent would be payable as an expense properly incurred in carrying on the business of the PAS Group within the meaning of section 556(1)(a) of the Corporations Act.
 Ford (Administrator), in the matter of The PAS Group Limited (Administrators Appointed) v Scentre Management Limited  FCA 1023.
  FCA 1023 at .
  FCA 1023 at .
 Subject to the requirements of s 444DA of the Corporations Act.
 See s 445D of the Corporations Act.
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