In June we published our JMAlert that outlined how ipso facto reforms will affect commercial contracts entered into after 30 June 2018, click here to view the article.
Since then, the Corporations (Stay on Enforcing Certain Rights) Declaration 2018 (Declaration) and Corporations Amendment (Stay on Enforcing Certain Rights) Regulations 2018 (Regulations) were made. These are critical parts of the reform package and operate to exclude some important rights and contracts from the new law.
While it is clear that only new contracts entered into after 30 June 2018 are caught by the new law, the position was less clear in respect of pre-30 June contracts that are assigned or novated after 30 June. The Regulations clarify the position, through transitional provisions which allow any contract entered into before 1 July 2018 to be novated, assigned or varied before 1 July 2023 without being subject to the ipso facto reforms.
By category, the following excluded contracts or contractual rights are also not covered by the new law:
Contracts regarding shares or securities
- Underwriting arrangements for the issue or sale of securities
- Security subscriptions or offers of securities under a rights issue
- Margin lending facilities and derivatives
- A “securities financing transaction”
- The issue of securities, financial products, bonds, promissory notes or syndicated loans
Construction and project management contracts for
- Project finance arrangements that involve “special purpose vehicles”
- The provision of certain project works or goods or services for building works in the construction industry, if the total payment for those works, goods and services is at least $1 billion (provided the contract is entered into between 1 July 2018 and 30 June 2023).
- Some step-in rights
Government contracts for
- Australia’s national security, border protection or defence capability
- The supply of goods or services to, or by, public hospitals or public health services
- The supply of essential or critical information technology, or communications technology, products or services. This includes supplies to local government.
- Rights under financing arrangements
- Rights to change or enforce how an amount is calculated, like a default interest under a financing arrangement or associated security
- Indemnities for losses or liabilities when preserving or enforcing rights
- Termination rights in a standstill or forbearance agreements
- Rights to change the priority that amounts are paid
- Acceleration rights to set-off or net balances. This is not a general exclusion for rights that accelerate when an amount is due and payable
- Assignment or novation rights, subordination agreements, flawed asset agreements and factoring agreements.
Sale of business contracts including
- Business asset sales
- Share or security sales
The list of excluded contracts and rights is broad, and limits the scope and application of the new ipso facto laws. At the same time, being new law, disputes may emerge about the practical application of the Regulations and Declaration.
You will therefore need to carefully assess if and how the new law applies to your contracts, and consider if the contract or a right falls within the ambit of an exclusion or transitional provisions. To protect your commercial interests, it may be necessary to amend certain contracts to take into account the new law.