Agencies need to get ready for ipso facto reform by making changes to their contracts, funding agreements and contract administration practices.

Australian Government Agencies face constraints on their ability to terminate agreements where a contractor has entered into voluntary administration or certain other forms of insolvency procedure. The Treasury Laws Amendment (2017 Enterprise Incentives No 2) Act, which amends the Corporations Act 2001 (Cth):

On 11 September 2017, major reforms to Australia's insolvency laws including an insolvent trading safe harbour and a restriction on the enforcement of ipso facto rights in certain circumstances passed through the Senate. These insolvency reforms amend relevant provisions of the Corporations Act.

The safe harbour provisions commenced on 19 September 2017.

In a big 24 hours for restructuring and insolvency, the safe harbour reforms were passed by the Senate late last night, and anti-phoenixing reforms were announced this morning.

Safe harbour reforms

The safe harbour laws will commence operation the day after the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017 receives Royal Assent, with the ipso facto provisions set to commence on 1 July 2018 (or earlier by proclamation).

To perfect a security interest by possession, a secured party must have actual or apparent possession of the property. A contractual right to possess is not enough.

We now have the first judicial guidance in Australia on the concept of "perfection by possession" under the Personal Property Securities Act 2009 (PPSA) (Knauf Plasterboard Pty Ltd v Plasterboard West Pty Ltd (In Liquidation) (Receivers and Managers Appointed) [2017] FCA 866).

What is "perfection by possession"?

Baker J in the High Court has given three recent judgments in matters concerning Section 115A(9) of the Personal Insolvency Acts 2012 – 2015 (the Acts). This Section gives a Court power to review and approve a Personal Insolvency Application (PIA) rejected at a meeting of creditors.

Re JD (a debtor) [2017] IEHC 119, High Court, 21 February 2017

The limitations of set-off in a liquidation scenario and the nature and effect of a security interest under the Personal Property Securities Act 2009 (Cth) (PPSA) have been clarified, with significant ramifications for principals and financiers, who should now review their rights, following the WA Supreme Court's decision in Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (In Liquidation) (Receivers and Managers Appointed) [2017] WASC 152 (Clayton Utz acted for the successful receivers).

Safe harbour and ipso facto clauses reforms are closer, with the consultation on the Insolvency Laws Amendment Bill 2017 having closed last week, but further work is needed.

The Federal Government's consultation on the safe harbour and ipso facto reforms in the draft Insolvency Laws Amendment Bill 2017 closed on 17 May 2017, so we now have a better idea of what they will look like.

In a High Court decision of 22 May 2017 Baker J rejected a proposal by a secured lender to write down a portion of a debtor couple's mortgage debt and warehouse half of the debt as future repayment of the warehoused part of the loan was not predicated on an ability to repay. Thus, the proposal was capable of creating circumstances amounting to insolvency at the end of the mortgage term in approximately 23 years.

Facts

The Irish Government has signed an Order giving the Cape Town Convention Alternative A insolvency remedy force of law in Ireland.

The Cape Town Convention creates an international uniform body of law applicable to interests in aircraft assets for the protection of financiers, lessors and conditional sellers and to establish basic remedies available to them under agreements relating to the aircraft assets.

Assets held by an insolvent corporate trustee in its capacity as trustee may not be "property of the company".

For more than 30 years, Victoria has stood apart from the rest of Australia in how it treats the assets of an insolvent corporate trustee. That may have changed, following the Supreme Court's decision in Re Amerind Pty Ltd (receivers and managers appointed) (in liq) [2017] VSC 127.