In the decision of Steinhardt v Trenfield & Park as liquidators of Wealth Base South Coolum Pty Ltd (in liq) [2015] QSC 237 (Wealth Base) the Supreme Court of Queensland has examined the application of section 568E of the Corporations Act 2001 (Cth), and what constitutes an appropriate undertaking to avoid prejudice to the parties in an application to set aside a liquidator’s disclaimer of onerous property.

In Wealth Base,  the plaintiff, Mr Steinhardt had sold to Wealth Base South Coolum Pty Limited a parcel of land, plus two adjacent lots, for a sale price of $11.2million, with $4.2million payable at settlement, and the balance payable over the next 10 years. The debt was secured by a second mortgage over the real property in favour of Mr Steinhardt, and it was a term of the contract for sale that the company grant to Mr Steinhardt a lease for a period of 10 years with the rent payable being $1.00. Upon Wealth Base South Coolum being placed into liquidation, the liquidators disclaimed the lease. Mr Steinhardt made application to the Court for orders setting aside the disclaimer and the Court was required to consider whether the disclaimer had caused the level of prejudice contemplated by section 568E(5).

The liquidators argued that the prejudice  to the company arising out of setting aside the disclaimer would be that the real property assets of the company would be unable to be realised until the expiry of the lease. The Court noted that this may not be a relevant prejudice, as section 568E(5) refers to the prejudice to “the company’s creditors” rather than a prejudice to one of them. The Court questioned whether a liquidator’s power of disclaimer should be exercised only for the benefit of the secured creditor, however was not required to decide this question as Mr Steinhardt proposed a compromise to surrender the lease if and when the land was sold. At paragraph [25], the Court set out the terms of an appropriate undertaking to be provided by Mr Steinhardt and held that, if that undertaking were provided, and the disclaimer set aside, there would be no prejudice to any creditor of the company and the threshold of section 568E(5) would be satisfied.