News

IPSO FACTO CLAUSES: WHAT YOU NEED TO KNOW

On 1 July 2018, new Ipso Facto provisions introduced into the Corporations Act 2001(Cth)(The Act) by the Treasury Laws Amendment (2017 Enterprise Incentives No 2) Act 2017 (Cth) commenced as part of the Federal Government’s insolvency innovation reform packages. The new provisions have altered the contractual rights of parties against insolvent counterparties by imposing a stay on the enforcement of Ipso Facto clauses, preventing the termination of a contract upon the occurrence of certain insolvency events. The new provisions apply to nearly all contracts, agreements and arrangements entered into on or after 1 July 2018. However, some contracts and contractual rights are excluded from the operation of the provisions pursuant to statutory instruments.

Given the infancy of the new regime, many companies are yet to fully grasp the changes or the implications for their businesses and what may be required to protect their commercial interests appropriately. The nature of the changes may alter the way you do business with your customers or contract with your clients, so it is important that you understand both the changes and the measures required to mitigate the potential risks to you and your business.

The Importance Of Default Notices On Disclaimer Of Onerous Property

The recent decision of Justice Logan of the Federal Court in Australia and New Zealand Banking Group Limited v State of Queensland [2018] FCA 464 acts as a reminder to directors and insolvency practitioners of the importance of default notices in retaining contractual rights and enforceable securities. It discusses the operation of section 133 of the Bankruptcy Act 1966 (Cth) (Act) and how it can protect security holders against bankruptcy disclaimers and the doctrine of escheat.

The Court’s Power To Terminate A Company’s DOCA

Justice Sifris in the recent Supreme Court decision of Eco Heat (Vic) Pty Ltd v the Syndicate Forty Four Pty Ltd (Subject to DOCA) & Ors [2018] VSC 156 used his power under the Corporations Act 2001 (Cth) to terminate a Deed of Company Arrangement executed by creditors. His Honour demonstrated the Court’s power to use such measures where corporate morality or public interest issues arise.

Insolvency Disclaimer As Priority Over Conflicting State Law

Insolvency practitioners and company directors will be relieved to learn that in general circumstances disclaimers of onerous obligations by a liquidator will have priority over conflicting state laws.

The recent case of Longley & Ors v Chief Executive, Department of Environment and Heritage Protection and Anor [2018] QCA 32 (Longley) overturned a contentious decision of the Brisbane Supreme Court and reiterated the general priority of the Corporations Act (Cth) over State laws.