Termination clauses (or insolvency clauses) provide for the termination of a contract whenever either of the parties becomes insolvent. To this end, the right of a party to terminate a contract is frequently triggered, not only by a formal declaration of liquidation or insolvency, but also by events that justify the belief that a party will soon become insolvent and unable to perform the contract. Such clauses are also frequently defined as "ipso facto" clauses. This is because the fact that a party passed a resolution or made an application in court for the restructuring of its debt or its reorganisation under any insolvency law is sufficient by itself (ie, ipso facto) to give rise to the right of the counterparty to terminate the contract with or without a previous notice.
Ipso facto clauses have become common in shipping charterparties because of the crisis of the shipping market that started in 2007. Ipso facto clauses enable owners and charterers to enact early termination of a charterparty as soon as there is evidence of any of the events mentioned above.
However, in light of the current economic crisis, the European Commission (like many countries in the world) has promoted a new approach to insolvency inspired by the "rescue philosophy", which has resulted in several important initiatives on insolvency, with the purpose of creating what has been described as the Preventive Restructuring Framework (ie, a complex matrix of regulations and legal mechanisms affording protection to debtors that are trying to overcome temporary insolvency). The preservation of pending charterparties can be crucial for shipping companies (whether owners or charterers) to overcome a moment of temporary crisis.
By means of Act No. 83, dated 17 June 2022, the Italian Parliament has introduced some important modifications to the Crisis and Insolvency Code contained in the Decree No. 14, dated 12 January 2019, by implementing the EU Restructuring and Insolvency Directive.(1) The reform of the entire insolvency-related legal system, which has been in force since 15 July 2022, is extremely complex and must be carefully scrutinised.
However, one specific issue deserves to be immediately highlighted in view of maritime law. According to article 18 of the Crisis and Insolvency Code, as modified by article 6 of Act No. 83/2022, whenever the entrepreneur obtains a protective or a cautionary measure from a competent judge, the creditors to whom the measure is addressed cannot:
- refuse the performance of contracts that are pending;
- provoke the termination of such contracts; or
- invoke early termination, even if there are outstanding credits to be paid.
This is a mandatory provision that prevails on any private agreement or contractual clause that may have been agreed upon between the parties, at least from the perspective of the predominance of the insolvency law over the applicable law agreed by the contractual parties. However, whether this provision will effectively protect owners or charterers from the attempts of the counterparties to immediately terminate charterparties by invoking termination or ipso facto clauses (which are normally subject to English law and jurisdiction) remains to be seen: it will depend on the Italian protective measures' ability to obtain immediate cross-border recognition.
For further information on this topic please contact Maurizio Dardani at Dardani Studio Legale by telephone (+39 010 576 1816), fax (+39 010 595 7705) or email ([email protected]). The Dardani Studio Legale website can be accessed at www.dardani.it.
Endnotes
(1) Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132.