07 March 2018

Contracting after 1 July 2018? Counterparties beware.

A paradigm shift is underway in Australian corporate restructuring.

Bold reforms are already in force which have changed the landscape for companies, their directors, creditors and other stakeholders.

From 1 July 2018, termination and other rights against companies in administration and other restructuring-related procedures will be unenforceable under the ipso facto reform. 

Regulations are expected to have significant effect on the scope of the stay – these regulations are yet to be published.

This is a key issue for everyone signing up to contracts with Australian companies from 1 July 2018.

Where are we now?

Safe harbour is law. We are seeing the early impacts of safe harbour in Australian boardrooms. Anecdotally, directors have focussed on seeking professional advice and are developing plans to try to satisfy the “better outcome” test.

Counterparties’ termination and other rights arising on voluntary administration, schemes to avoid insolvent liquidation or significant receiverships will be unenforceable under the ipso facto reform. 

This is expected to give Australian companies greater control over their trading during these procedures, encourage trade-on restructurings and preserve the enterprise as a going concern.

Anecdotally, counterparties are considering amendments to contracts to protect their rights. These require careful consideration – the broad anti-avoidance provisions apply to arrangements “in substance contrary" to the stay.

Where to next?

Ipso Facto timeline
(Please click on the image above to see a full-size version)

Key things to watch for in the ipso facto regulations:

  • Carve outs will be confirmed, categories are expected to expand. Currently expected to apply to certain financial contracts including ISDAs, aircraft leasing and financing, underwriting and software licencing arrangements.
  • Potential extension of the stay to pre-appointment events.
  • Clarifications on the scope of the broad anti-avoidance provisions.

Key contacts

Regulator

Australia's financial institutions are experiencing more regulatory pressure than ever before. Remain at the forefront of key regulatory issues as we guide and shape the future of financial services.

regulator
Share on LinkedIn Share on Facebook Share on Twitter
    You might also be interested in

    Keepwell deeds, also known as letters of comfort, are a credit protection tool commonly used by Chinese companies issuing debt offshore.

    23 February 2021

    On 17 February 2021, the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021 (“Bill”) was introduced into the House of Representatives.

    19 February 2021

    China’s annual National People’s Congress parliamentary session will take place in March to approve the country’s social and economic development plans for the period 2021-25.

    09 February 2021

    On February 1, Myanmar’s military-owned Myawaddy TV announced that a state of emergency would be imposed in accordance with Articles 417 and 418 of the 2008 Constitution of Myanmar (the “Constitution...

    05 February 2021

    This site uses cookies to enhance your experience and to help us improve the site. Please see our Privacy Policy for further information. If you continue without changing your settings, we will assume that you are happy to receive these cookies. You can change your cookie settings at any time.

    For more information on which cookies we use then please refer to our Cookie Policy.