Ipso Facto Law Reform and Insolvency Clauses Going Forward

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July 2018

From 1 July 2018 the ipso facto law reform has now come into force. Along with the new Safe Harbour legislation previously discussed in our newsletter, it forms part of the Federal Government’s insolvency law reform package. This means that business-to-business contracts will become much more complex if an insolvency action arises.

Up to now, if a counterparty became insolvent contract principals would exercise their ipso facto rights under the contract to protect their position by either suspending works, terminating the contract, calling upon bank guarantees, or raising set-off claims.

These new laws, however, mean that once an administrator or receiver is appointed over substantial assets, or a scheme of arrangement made to avoid winding-up is proposed, the above ipso facto rights will be unenforceable against the counterparty if they are raised by a principal for any of the following reasons:

  • The administration, receivership, or proposed scheme of arrangement of the counterparty;
  • The credit rating of the counterparty;
  • A change of control or material adverse effect on the counterparty’s financial position; or
  • Termination by court order for convenience, based on the counterparty’s position.

Therefore, it is crucial for business owners or contract principals to review the security, insolvency, breach, termination, and set-off provisions of their contracts.

However, bear in mind that these new laws are not retrospective and will only apply to contracts entered into after 1 July 2018.

For any further questions, or to conduct a review of your services contracts or agreements to bring them into line with the new legal regime and protect your business position, please contact us at hello@prioritylawyers.com.au.

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Raea Khan Circle
Director Lawyer
Raea Khan

Raea is Managing Director and Principal Lawyer for PBl Law Group. Raea assists clients with major projects, property developments, construction and strata law.

He has worked in Western Australia and Queensland assisting with expansion projects in the energy and resource sector and now predominately advises clients in Strata and Community Association matters.

He is a member of the Australian College of Strata Lawyers where majority of his work is advising developers and owners corporations with dispute related minor and major defects, strata governance and common property litigation. He is proficient at leading negotiations and meetings.

Raea has a particular interest in the commercial aspect of any dispute and always tries to weigh up the risk, reward and benefit of legal proceedings at each different stage.

Raea enjoys all forms of competitive sport, including Crossfit and actively participates in Triathlons, representing Australia as an age group athlete. He was a member of Red Head Surf Lifesaving club.

  • Strata Law
  • Construction & Major Projects
  • Commercial and Business Law
  • Planning & Environment Law