From 1 July 2018 the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Act 2017 amends the Corporations Act by inserting sections 415D, 434J and 451E to provide for a stay on the enforcement of “ipso facto” clauses which terminate a contract with an insolvent business because that business has gone into voluntary administration, a scheme of arrangement (to avoid insolvent liquidation) or receivership.
The change is designed to assist viable but financially distressed companies to continue to operate and salvage the remaining value of the business. Background.
The Corporations Amendment (Stay on Enforcing Certain Rights) Regulations 2018 excludes certain contracts from the new restrictions by prescribing the kinds of contracts, agreements or arrangements which are not subject to the stay.
These contracts include situations in which there are established systems and expectations in operation and a stay would disrupt the market, or where it would be commercially impractical for an ipso facto clause to be stayed.
In relation to financial services the contracts include:
“(g) a contract, agreement or arrangement that is, or is directly connected with, a derivative;
(h) a contract, agreement or arrangement that is, or is directly connected with, a securities financing transaction;
(i) a contract, agreement or arrangement for the underwriting of an issue, or sale, of securities, financial products, bonds, promissory notes, or syndicated loans;
(j) a contract, agreement or arrangement under which a party is or may be liable to subscribe for, or to procure subscribers for, securities, financial products, bonds, promissory notes, or syndicated loans;
(k) a contract, agreement or arrangement that is, or governs, securities, financial products, bonds, promissory notes, or syndicated loans;
(l) a contract, agreement or arrangement under which securities are offered, or may be offered, under a rights issue;
(m) a contract, agreement or arrangement for the sale of all or part of a business, including by way of the sale of securities or financial products;
(n) a contract, agreement or arrangement for the issue of an instrument that:
(i) is a security, financial product, bond, promissory note, or syndicated loan; and
(ii) belongs to a class of such instruments, each of which is fungible, and the first of which was issued before 1 July 2018;
(o) a contract, agreement or arrangement that is, or is directly connected with, a margin lending facility (within the meaning of Chapter 7 of the Act);
(p) a contract, agreement or arrangement that is:
(i) a covered bond (within the meaning of the Banking Act 1959); or
(ii) for issuing such a bond; or
(iii) directly connected with such a bond or the issuing of such a bond;
(q) a contract, agreement or arrangement providing for the management of financial investments;
(r) a contract, agreement or arrangement that involves a special purpose vehicle, and that provides for securitisation or a public‑private partnership;
(s) a contract, agreement or arrangement that involves a special purpose vehicle, and that provides for a project finance arrangement under which:
(i) a financial accommodation is to be repaid or otherwise discharged primarily from the project’s cash flow; and
(ii) all or substantially all of the project’s assets, rights and interests are to be held as security for the financial accommodation;
(t) a contract, agreement or arrangement for the keeping in escrow of:
(i) code, or passwords, for computer software; or
(ii) material directly associated with such code or passwords;
…..
(v) a contract, agreement or arrangement under which the priority of security interests in particular property is changed or can change;
(w) a contract, agreement or arrangement that is a flawed asset arrangement;
(x) a contract, agreement or arrangement that is, or is directly connected with, a factoring arrangement (within the meaning of the ASIC Corporations (Factoring Arrangements) Instrument 2017/794);
(y) a contract, agreement or arrangement that is the operating rules (other than the listing rules) of a financial market;
(z) a contract, agreement or arrangement that is the operating rules of a clearing and settlement facility;
(za) a contract, agreement or arrangement that confers rights on the operator of a financial market, or the operator of a clearing and settlement facility, in relation to the operation of the market or facility;
(zb) a contract, agreement or arrangement of which the parties include the Reserve Bank of Australia and the operator of a clearing and settlement facility;
(zc) a contract, agreement or arrangement under which participants (within the meaning of Chapter 7 of the Act) in a clearing and settlement facility may settle obligations on behalf of other participants (within the meaning of that Chapter) in the facility;
(zd) a legally enforceable arrangement referred to in paragraph 9(1)(b) of the Payment Systems and Netting Act 1998 that supports an approved RTGS system (within the meaning of that Act);
(ze) an approved netting arrangement (within the meaning of the Payment Systems and Netting Act 1998);
(zf) a contract, agreement or arrangement that confers rights on:
(i) the operator of an approved RTGS system (within the meaning of the Payment Systems and Netting Act 1998); or
(ii) the coordinator of an approved netting arrangement (within the meaning of that Act);
in relation to the operation of that system or netting arrangement;
(zg) a contract, agreement or arrangement under which the parties to an arrangement covered by paragraph (zd) or (ze) (the main arrangement) may settle obligations on behalf of other parties to the main arrangement;
(zh) a close‑out netting contract (within the meaning of the Payment Systems and Netting Act 1998);
(zi) a contract, agreement or arrangement under which security is given over financial property (within the meaning of the Payment Systems and Netting Act 1998) in respect of eligible obligations (within the meaning of that Act) of a party to a contract covered by paragraph (zh);
(zj) a netting market (within the meaning of the Payment Systems and Netting Act 1998);
(zk) a market netting contract (within the meaning of the Payment Systems and Netting Act 1998);
(zl) a contract, agreement or arrangement under which security is given, in accordance with a market netting contract covered by paragraph (zk), in respect of obligations of a party to the market netting contract;
(zm) a contract, agreement or arrangement that is an outsourcing arrangement for the purposes of Prudential Standard CPS 231 Outsourcing or Prudential Standard SPS 231 Outsourcing;
(zn) a contract, agreement or arrangement entered into or renewed on or after 1 July 2018, but before 1 July 2023, as a result of either of the following:
(i) the novation of, or the assignment of one or more rights under, a contract, agreement or arrangement entered into before 1 July 2018;
(ii) a variation of a contract, agreement or arrangement entered into before 1 July 2018;
(zo) a contract, agreement or arrangement entered into on or after 1 July 2018, but before 1 July 2023, for the provision of any of the following kinds of work, goods or services for a particular project:
(i) building work (within the meaning of the Building and Construction Industry (Improving Productivity) Act 2016);
(ii) work to be carried out anywhere in Australia that, if carried out in New South Wales, would be covered by paragraph 5(1)(d) or (f) of the Building and Construction Industry Security of Payment Act 1999 (NSW) and not be excluded by subsection 5(2) of that Act;
(iii) goods or services to be provided anywhere in Australia that, if provided in New South Wales, would be related goods and services (within the meaning of the Building and Construction Industry Security of Payment Act 1999 (NSW));
if the total payments under all contracts, agreements or arrangements for the project for work, goods or services of those kinds is at least $1 billion;
(zp) a contract, agreement or arrangement that:
(i) is entered into to enable the satisfactory completion of a contract, agreement or arrangement covered by paragraph (zo); and
(ii) is for the provision of a kind of work, goods or services covered by that paragraph.”
UPDATE: see also
Corporations (Stay on Enforcing Certain Rights) Declaration 2018
Corporations Amendment (Stay on Enforcing Certain Rights) Regulations (No. 2) 2018
