The High Court has confirmed the right of a liquidator of a company to "disclaim" leases granted by the company. The effect of such a disclaimer would be to terminate the tenant's rights arising under the lease.The decision will affect mortgagees that are lenders to parties involved in such lease arrangements.The case involved Willmott Forests, which was the responsible entity for several managed forestry schemes. The members of the schemes had rights to grow and harvest trees on Willmott's land subject to lease agreements.Willmott went into liquidation in September 2010, and the liquidators sought to sell the land free from any encumbrances, including the leases to the growers.In June 2011, the liquidators filed an application in the Victorian Supreme Court under section 568 of the Corporations Act, which provides a mechanism for a liquidator to apply to a court to determine questions arising from the winding up of a company.The liquidators sought orders in relation to whether they could disclaim the leases.The Supreme Court held that the Corporations Act did not give the liquidators the power to disclaim the leases. The Court of Appeal reversed that decision.The matter went on to the High Court, where a majority held that section 568(1) of the Corporations Act gave the liquidator of a company power to disclaim a lease granted by the company. A lease was "a contract" within the meaning of the section.A partner at Gadens Lawyers, Justin Bates, said the effect of the decision was that once a lease was disclaimed the landlord was entitled to possession of the property and could sell it without regard to the tenant's interest.Bates said: "This would appear to be the position, regardless of whether a mortgagee has consented to the lease and is a substantial creditor."Bates said the Corporations Act allowed tenants to challenge a liquidator's disclaimer. He said: "What remains to be seen is whether tenants can resist having their leases disclaimed on the basis that the loss to the tenants outweighs the benefits to creditors. The Act provides little guidance on how these competing interests are to be assessed."