Australia – The “Ipso Facto” Prohibition in the Corporations Act Applicable to Corporate Insolvency.

5 April 2021

An ipso facto clause is a contractual provision that allows one party to the contract to terminate or modify the operation of the contract upon the occurrence of a specified insolvency related event (such as the appointment of an administrator, receiver or liquidator) in respect of another party.

From 1 July 2018, a moratorium on reliance on “ipso facto” contractual clauses triggered by the counterparty becoming subject to certain specified formal corporate insolvency events came into effect.

On 1 January 2021, the scope of the moratorium was further amended to reflect the new restructuring regime in Part 5.3B of the Corporations Act.

In this publication:

• Ipso facto clauses

• Stay on enforcement of ipso facto rights

• Application of the stay

• Exceptions to the stay

• Ipso facto decision tree

• Exclusions from the ipso facto provisions inserted into the Corporations Act 2001 with effect from 1 July 2018

• The kinds of rights which are excluded

• The kinds of rights which are excluded in specified circumstances.