Treasury has released for public consultation exposure drafts of the Corporations Amendment (Stay on Enforcing Certain Rights) Regulations 2018 and the Corporations (Stay on Enforcing Certain Rights) Declaration 2018 supporting the reform of ipso facto clauses.
The Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Act 2017 amends the Corporations Act to provide for a stay on the enforcement of ipso facto clauses to assist viable but financially distressed companies to continue to operate and salvage the remaining value of the business. Background.
The draft regulations exclude certain contracts from the stay on enforcement on the basis that in some circumstances it is necessary or desirable for the ipso facto clauses to continue to operate. These circumstances 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.
It is planned that the ipso facto reforms together with the Regulations and Declaration will commence on 1 July 2018.
Contracts not subject to stay
The contracts that will not be subject to the ipso facto stay include:
- An agreement for the sale of all or part of a business;
- Arrangements relating to laws and international obligations;
- Government licences or permits;
- Arrangements relating to securities and financial products;
- Arrangements relating to debt and the ranking of creditors;
- Arrangements relating to financial markets, and clearing and settlement facilities;
- Netting arrangements; and
- Post 30 June 2018 contracts arising from variation, novation or assignment of a contract entered into before 1 July 2018.
Rights not subject to stay
The rights that will not be subject to the ipso facto stay include:
- Uplift clauses and indemnification;
- Termination rights in a standstill or forbearance arrangement;
- Rights to change the priority in which amounts are to be paid;
- Rights of set-off and combination of accounts;
- Rights of assignment and novation;
- Certain self-executing provisions; and
- Step-in rights.
