When a Liquidator Disclaims a Lease or Other Onerous Property: Section 568 in Practice 

A liquidator can disclaim a company’s lease or other property under section 568 of the Corporations Act 2001 (Cth), subject to statutory requirements and rights of challenge. For business tenants in Victoria, this can mean losing the right to occupy premises even where rent is paid, and the lease has years to run. 

A liquidator’s disclaimer of onerous property in Australia can affect valuable rights held by other parties. In Willmott Growers Group Inc v Willmott Forests Ltd (Receivers and Managers Appointed) (In Liquidation) [2013] HCA 51, the High Court confirmed that disclaimer of a lease by the lessor’s liquidator can extinguish the tenant’s leasehold estate. The tenant may then lodge an unsecured proof of debt for loss caused by the disclaimer, with recovery dependent on funds available in the liquidation. 

For tenants, commercial counterparties and liquidators, a section 568 disclaimer requires close attention to the property involved, its legal effect and the available grounds for challenge. Setting aside a disclaimer involves a demanding prejudice test, and short statutory time limits make prompt assessment of the notice essential. 

How Does a Section 568 Disclaimer Operate, and When Can It Be Challenged? 

Section 568 of the Corporations Act 2001 (Cth) permits a liquidator to disclaim specified company property by signed writing. Sections 568B, 568D and 568E govern challenges and consequences. These federal provisions apply in Victoria. 

The power covers land burdened with onerous covenants, unsaleable property, property carrying liabilities, assets whose realisation costs would exceed their proceeds, shares and contracts. Under section 568(1A), contracts require leave of the court unless they are unprofitable contracts or leases of land. A section 568 disclaimer is therefore not simply a right to abandon any unwanted agreement. 

In In the matter of Tahmoor Coal Pty Ltd (in liq) [2026] NSWSC 773, the NSW Supreme Court held that a royalty deed was not unprofitable merely because its continuation reduced the mine’s sale price. The counterparty’s advance consent had also removed the practical burden on the sale process. The Court refused leave to disclaim. This illustrates the importance of the contract’s actual effect on liquidation. 

The section 568D effect is to terminate the company’s rights, interests, and liabilities in respect of the disclaimed property. Other people’s rights are affected only as far as necessary to release the company and its property from liability. 

In Willmott Growers Group Inc v Willmott Forests Ltd (Receivers and Managers Appointed) (In Liquidation) [2013] HCA 51; (2013) 251 CLR 592, the High Court majority held that disclaimer of a lease by the lessor’s liquidator could terminate the tenants’ leasehold estates. Section 568D(2) allows an affected person to prove loss caused by disclaimer in the winding up, ordinarily through an unsecured proof of debt. 

Section 568B setting aside applications must be made before disclaimer takes effect, within 14 days of the applicable statutory notice event. The applicant must establish prejudice grossly out of proportion to the prejudice that setting aside would cause creditors. Section 568A–568C govern notice and commencement. After disclaimer takes effect, section 568E requires leave of the court: it must have been unreasonable to expect an earlier application. The prejudice assessment also protects people who changed positions based on the disclaimer. 

What Do Courts Consider When a Liquidator’s Disclaimer is Disputed? 

The court’s approach depends on whether the dispute concerns the liquidator’s power to disclaim, permission to exercise that power, or an application to set aside a disclaimer. For Victorian business tenants and commercial counterparties, identifying the correct issue determines what evidence is needed. 

Does the property fall within the liquidator’s disclaimer power? 

The starting point is the company’s legal interest and the agreement’s actual operation. A section 568 disclaimer must concern property within the statutory categories. For contracts other than leases of land, the liquidator must establish that the contract is unprofitable or obtain leave of the court. A preferable commercial outcome does not establish unprofitability. Relevant evidence includes continuing expenditure, reciprocal benefits, performance obligations, and their effect on completing the liquidation. 

Can the counterparty remove the burden on liquidation? 

A practical concession may affect whether a contract is unprofitable. In Tahmoor Coal, advance consent to a purchaser assuming the royalty deed removed difficulties associated with obtaining consent during the sale process. Counterparties should examine whether binding consent, waiver, or variation could address the liquidator’s concern. Any proposal needs to explain what obligation changes and how that change assists the liquidation. It does not automatically prevent disclaimer. 

What evidence supports setting aside under section 568B? 

Serious loss alone is insufficient. The court compares the prejudice to people claiming interests in the property with the prejudice that setting aside would cause creditors. The former must be grossly out of proportion to the latter. 

For a tenant, useful evidence may include relocation costs, unavailable alternative premises, fit out expenditure and interruption to contracted work. The liquidator’s evidence may address holding costs, sale conditions, delays, and likely creditor returns. Figures should distinguish unavoidable loss from expenditure already incurred or costs that could be reduced. The comparison requires evidence on both sides. 

How does delay affect the available relief? 

Record when notice was lodged, given and, where applicable, published. Those events determine the section 568B deadline; negotiations do not suspend it. Once disclaimer takes effect, section 568E requires leave of the court and an explanation of why an earlier application could not have been expected. The court also considers prejudice to purchasers or others who relied on the disclaimer. Delay can therefore change both the procedural requirements and the interests weighed against relief. 

What can a tenant recover if the lease is lost? 

Following disclaimer of a lease by the lessor’s liquidator, an unsecured proof of debt must identify and substantiate loss caused by the disclaimer. Evidence of lease value and consequential loss may be relevant, subject to causation and valuation. Admission of the claim does not secure full payment: recovery depends on the assets available after secured claims and statutory priorities are addressed. 

What Disputes Arise When a Liquidator Disclaims a Lease or Commercial Contract? 

Disputes over a section 568 disclaimer often centre on whether an asset sale can proceed without existing contractual rights, and who bears the resulting loss. For Victorian business tenants and counterparties, the immediate commercial issue is preserving occupation or negotiated value while the liquidation moves towards a sale. 

In Willmott, investors held forestry leases generally running for 25 years, with some providing for all rent to be paid in advance. The sale process produced no interest in acquiring the assets subject to the schemes. The resulting sale contracts required transfer free of scheme encumbrances. Investors argued that their leasehold estates would survive disclaimer, but the High Court majority rejected that position. The practical significance of disclaimer of a lease by the lessor’s liquidator is therefore acute for tenants who have already committed capital: prepaid rent does not, by itself, preserve the leasehold estate. 

That decision also exposes the importance of identifying precisely what is being disclaimed. The Willmott liquidators sought to disclaim the leases granted to investors, not the company’s ownership interest in the land subject to those leases. Seeking specific performance of contracts cannot override an effective statutory disclaimer. The notice, lease and proposed sale terms must therefore be assessed carefully before pursuing contractual enforcement. 

Tahmoor Coal concerned a different conflict over sale value. The proposed purchaser would assume a royalty obligation that reduced the price available to creditors. The sale agreement also provided a replacement royalty benefiting the liquidators if the existing royalty ceased to apply. The Court refused leave to disclaim the royalty deed. A transaction structured to produce a better creditor return does not itself establish an entitlement to remove the counterparty’s rights. 

Loss assessment creates a separate practical task. A tenant preparing an unsecured proof of debt should preserve payment records, the executed lease, variations, and valuation evidence. Prepaid rent, remaining lease value, and business interruption cannot simply be added together without examining causation and overlap. The claim must explain the loss attributable to disclaimer, rather than treating every financial consequence of the landlord’s insolvency as recoverable. 

What Should You Assess Before Pursuing or Defending a Disclaimer Dispute? 

Before pursuing or defending a section 568 disclaimer dispute, identify the commercial result that matters: retaining occupation, preserving contractual value, or recovering a provable loss. That choice should determine the relief sought and the evidence commissioned. A successful challenge to the liquidator’s power and an application to set aside an otherwise authorised disclaimer involve different questions. 

Calculate the statutory deadline from the notice history before negotiations begin. Preserve the notice, delivery records, and ASIC lodgement details. Correspondence asking the liquidator to reconsider does not replace a court application or stop time running. If disclaimer has taken effect, assess the section 568E requirements for leave of the court immediately, including evidence explaining why an earlier application could not have been expected. 

Build the prejudice comparison around documents capable of supporting sworn evidence. For a tenant, obtain evidence of replacement premises, relocation lead times, lease value, and disruption to existing commitments. For a liquidator, document continuing liabilities, available sale alternatives, and the effect on creditor distributions. Test assumptions about sale prices and delays against actual offers and contractual conditions. 

Any proposed consent, waiver, or variation should address the identified burden in enforceable terms. An informal assurance may leave the underlying obligation unchanged. Record what the proposal would achieve, its cost, and whether the purchaser’s agreement is required. 

Assess settlement offers and costs consequences against the value realistically preserved. Preparing an unsecured proof of debt alongside an urgent challenge can protect the evidentiary position if the challenge fails, but the claim should avoid overlapping heads of loss and unsupported recovery assumptions. 

Frequently Asked Questions 

How Can You Protect Your Position When a Liquidator Disclaims Property? 

A section 568 disclaimer can remove valuable leasehold or contractual rights, leaving the affected party to prove its loss in the liquidation. The available response depends on the property disclaimed, compliance with statutory requirements, and evidence supporting a challenge. Short deadlines mean that commercial negotiations and legal assessments should proceed together. 

For tenants, counterparties, and liquidators in Victoria, our insolvency lawyers can assess the notice, available remedies, and costs against the value at stake. Book a consultation to discuss preserving your position, responding to a challenge, or preparing an unsecured proof of debt. Bring the disclaimer notice, relevant agreements and correspondence so the applicable deadline can be checked promptly. 

This article is general information only and not legal advice. For advice specific to your circumstances, please contact our team.