By that very fact: ‘ipso facto’ clauses on hold from 1 July 2018
By Foez Dewan and Paulina Raad, McCabe Curwood
‘Ipso facto’ clauses enable a party to automatically enforce certain rights against a counterparty upon the occurrence of one or more events specified in a contract. This article discusses the effect of reforms that were introduced into the Corporations Act 2001 (Cth) by the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Act 2017 (Cth) (the Act).
The new laws commenced on 1 July 2018 and only apply to contracts, agreements or arrangements entered into on and from that date. The new laws provide a stay on the enforcement of an ‘ipso facto’ right to terminate or amend a contract if that right is triggered by a company:
- Proposing to enter into a scheme of arrangement;
- Entering into receivership; or
- Being placed under administration.
‘Ipso facto’ clauses are described as self executing provisions in the new laws. The stay period commences upon the occurrence of the insolvency event, and ends depending on the insolvency event, as in the table on the left.
The Act contains several exemptions to the stay provisions. Additional exemptions are contained in the regulations and declarations, which are currently in draft form. These exemptions relate to business and share sale agreements, subscription agreements for securities, government licenses and so forth.
It is important that companies familiarise themselves with this important change and obtain advice to ensure that their legal position is adequately protected in the event of a default by a counterparty.
Foez DewanMcCabe Curwood, Sydney, Australia
T: +61 2 9265 3214
Mc Cabe Curwood is a multidisciplinary law firm, providing astute and commercial legal solutions for its clients. By emphasising technical excellence and commitment to quality, the firm offers pragmatic legal solutions tailored to current and future business objectives of its clients. McCabe Curwood’s Litigation and Dispute Resolution Group was recently nominated as a finalist for the Lawyers Weekly Australian Law Awards 2018 – Dispute Resolution Team of the Year.
Foez Dewan is a Principal in McCabe Curwood’s Litigation and Dispute Resolution Group. He has extensive experience in commercial and contractual matters, equity and corporations law, and has represented his clients in some of the most complex cases in the NSW Supreme Court and the Court of Appeal, and the High Court of Australia.
Paulina RaadMcCabe Curwood, Sydney, Australia
T: +61 2 9265 3214
Paulina Raad is a lawyer in McCabe Curwood’s Litigation and Dispute Resolution Group. She has acted for her clients in a range of matters, including contractual disputes, directors’ duties, competition and consumer law, and property.
Published: Autumn 2018 l Photo: ©f11photo - stock.adobe.com