Late last year we summarised the impacts the safe harbour and ipso facto law reform, brought about by the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Act 2017 (Cth) (Act), would have on insolvency laws (see here). The Act introduced a stay on the enforcement of ipso facto clauses in construction and other commercial contracts, effective 1 July 2018. As part of the reform the Regulations were passed on 1 July 2018, recognising scenarios where staying the operation of ipso facto clauses is unnecessary or undesirable.
This article provides an overview of the exclusions to the stay on ipso facto clauses under these newly introduced provisions.
The stay on ipso facto clauses
Ipso facto clauses are common in construction and commercial contracts, and enable a party to terminate a contract in the event the other party suffers an insolvency event (usually defined broadly in the relevant contract). The ipso facto stay will apply where:
As a result, the stay will affect a party’s contractual ability to enforce a right, and terminate, modify or suspend the contract. The stay aims to allow businesses to recover from financial distress and undergo genuine restructuring to continue to operate and perform their contractual obligations in hopes of overcoming an insolvency event.
What is excluded from the stay of ipso facto clauses?
The new Regulations broadly exclude the following kinds of contracts, agreements or arrangements from the ipso facto stay:
Important exclusions for the construction sector
There are three key exclusions that are relevant to the construction sector:
1. Exclusions for construction contracts
This exemption applies to a contract, agreement or arrangement:
2. Exemption for contracts with a SPV
This exemption applies to a contract, agreement or arrangement that involves a SPV and provides for:
3. Exemption relating to critical works for government
This applies to certain contracts, agreements or arrangements for the provision of essential or critical goods or services to, or the carrying out of essential or critical works for, government. This would cover critical public infrastructure including roads or railways.
Further, the newly introduced exclusions apply to the exercise of the following kinds of rights:
The ipso facto law reform is now in force. Organisations entering into commercial or construction contracts should:
These new laws make the due diligence around contractor selection more important than ever, particularly in relation to financial solvency.
Authors: Scott Alden, Victoria Gordon & Christopher Yong
 Corporations Amendment (Stay on Enforcing Certain Rights) Regulations 2018 (Cth) (Regulations); Corporations Amendment (Stay on Enforcing Certain Rights) Regulations (No. 2) 2018 (Cth) (Amended Regulations); and Corporations Amendment (Stay on Enforcing Certain Rights) Declaration 2018 (Cth) (Declaration), since repealed, with the exclusions to the ipso facto stay being integrated into regulation 5.3A.50 of the Corporations Regulation 2001 (Cth).
Scott Alden, Partner
T: +61 2 8083 0419
Christine Jones, Partner
T: +61 2 8083 0477
Helena Golovanoff, Partner
T: +61 2 8083 0443
Troy Lewis, Partner & National Head of Construction and Infrastructure
T: +61 7 3135 0614
Stephen Burton, Partner
T: +61 7 3135 0604
Suzy Cairney, Partner
T: +61 7 3135 0684
Stephen Natoli, Partner
T: +61 3 9321 9796
Kyle Siebel, Partner
T: +61 3 9321 9877
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Published by Scott Alden, Victoria Gordon, Christopher Yong