The ipso facto regulations – more technically, the Corporations Amendment (Stay on Enforcing Certain Rights) Regulations 2018 – were released on 22 June 2018.
The regulations represent the last stage of reforms that are intended to limit the availability of so-called ipso facto clauses (aka ‘insolvency event’ or ‘termination for insolvency’ clauses, and discussed in more detail here), providing a list of exemptions: contracts to which the reforms will not apply.
Such clauses allow a party to terminate a contract if the other party becomes insolvent – even if there is no other default – making it harder to restructure a business that enters formal insolvency administration.
Those responsible for updating existing contracts (which disappointingly will remain unaffected by the ipso facto reforms) will say that the eight-day gap between the release of the regulations and their taking effect will leave very little time to make those changes, but perhaps that was intended.
SPV exemption tightened
The draft regulations included a very wide exemption for ‘a contract, agreement or arrangement of which a special purpose vehicle is a party.’ Sensibly this has been narrowed to securitisation, public/ private partnerships and project finance arrangements.
National Security
The final version of the regulations adds an exemption for contracts relating to ‘Australia’s national security, border protection or defence capability.’
Such an exemption suggests that the ipso facto reforms are seen by some as having the potential to threaten Australia’s current security arrangements and capability, when in fact they could equally operate to ensure that current security arrangements are maintained!
‘Mega-Projects’
The final version also adds a five-year exemption for construction contracts where the total payments ‘under all contracts, agreements or arrangements for the project’ is more than $1 billion.
There is no mechanism to ensure that sub-contractors to such mega-projects will know whether the key billion dollar threshold will be reached, and whether the exemption will therefore apply. The consequences of acting in ignorance of such an exemption would seem problematic, but thankfully in practice there will be only a small number of such mega-projects.
The final version of the regulations is available here.
Australian Loan Restructuring Issues 