Business Law Articles
By: Rebecca Castley, Esq.
A recent decision of QCAT has found that a body corporate may terminate management rights agreements where a liquidator is appointed, notwithstanding the provisions of section 126 of the Body Corporate and Community Management Act 1997 (BCCMA).
Section 126 of the BCCMA limits the ability of a body corporate to terminate a financed contract. Section 126(2) prevents a body corporate from terminating a management rights agreement where a financier is acting in a contractor’s place or where receivers have been appointed.
Section 126(7) does, however, allow a body corporate to terminate where something is done or not done after a financier or receiver begins to act. Usually this would be for a failure to provide the services contemplated by the agreement.
In Vie Management Pty Ltd v Body Corporate for Gallery Vie CTS 37760, the manager applied for orders that the body corporate be restrained from terminating the management rights agreement on the grounds of the appointment of receivers and subsequently, a liquidator to the manager.
The management rights agreement provided that, upon appropriate written notice, the Body Corporate could terminate upon the usual insolvency events occurring, including the appointment of a receiver, the winding up of the applicant, or the appointment of a liquidator or provisional liquidator.
The manager argued that after the appointment of a receiver, section 126(7) applied and only allowed a body corporate to terminate for something done or not done pursuant to the agreement after the financier started to act.
The Tribunal found that this section was not confined to acts specifically taken in performance of the agreement by the receiver or the manager and could be acts undertaken by third persons.
The Tribunal found that the filing of the winding up application in relation to the manager and the appointment of liquidators were matters that fell within section 126(7). They were something being done or not being done under the agreement which entitled the body corporate to terminate for insolvency events of the manager.
Whilst the Tribunal found the body corporate has a right to terminate, it had not in this case given the requisite notice.
This decision appears to ignore what would have to have been the Parliament’s true intent in enacting section 126(2) to limit a body corporate’s right to terminate a contract where a financier is acting under a security over management rights agreements or has appointed a receiver.
Given the imperative for financiers to be able to exercise security rights over management rights agreements in the event of the insolvency of a manager, it appears that there may be a need for legislative change to protect the financier’s rights.
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