New Laws Regarding Ipso Facto Clauses Starting 1 July 2018
Ipso Facto clauses are provisions in a contract which allow a party the right to terminate a contract as a result of a counterparty entering into an insolvency event. Insolvency events can include a party entering receivership, applying or announcing a scheme of arrangement and entering voluntary administration.
As of 1 July 2018, a stay will be placed on all termination rights, meaning parties to a contract will be unable to enforce Ipso Facto clauses, in events where a company party:
- appoints a managing controller, whether it is a receiver or a manager, to the entirety of the property of a company;
- enters Voluntary administration; and
- attempts to avoid being wound up by applying for, or announcing, a scheme of arrangement.
All rights to terminate apart from the insolvency events listed above remain enforceable. This includes other events of insolvency such as liquidation as well as non-performance and non-payment.
There are exceptions to the new Ipso Facto rights which include the right of set-off and step-in rights.
These new Ipso Facto laws will only apply to agreements that come into effect after 1 July 2018.