Ipso facto clauses now a problem

In addition to introducing “safe habour” legislation, the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Act 2017 (Cth) places restrictions on ipso facto clauses. Ipso facto clauses are clauses that allow for termination due to insolvency. The Act limits the ability to enforce these clauses during periods of voluntary administration, receivership or schemes of arrangement. The aim of the law is to give companies a better chance to recover from financial hardship.

What do you need to do? Don’t try and rely on an ipso facto clause without obtaining legal advice. For future contracts, consider what other options, if any, you want available if a company is in administration – for example, a clause that enables you to delay payment may be useful. You also want to ensure that termination for non-performance is not linked to termination for insolvency. This will enable you to still terminate for performance related matters.

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