While much attention earlier this year was paid to the introduction of the safe harbour for directors, the second element in Australia's major reforms to insolvency laws ‒ the moratorium on the enforcement of ipso facto clauses (including self-executing clauses) ‒ is now in effect.

Introduction

The concept of winding up does not exclusively apply to insolvent companies. Solvent companies can also be wound up, on the initiation of the company’s directors and shareholders (for example, as part of a corporate reconstruction or to close down non-operating or redundant entities).

An overview of the two key procedures to effect the dissolution of a solvent Australian company, being Members’ Voluntary Liquidation and Deregistration, is set out below.

The two limbs of the defence to an unfair preference claim under section 588FG(1)(b) and (2)(b) of the Corporations Act have separate work to do.

In a useful decision for liquidators and the insolvency industry, the WA Court of Appeal has clarified the nature of the tests creditors need to satisfy to maintain a defence to a liquidator's unfair preference claim in section 588FG(1)(b) or (2)(b) of the Corporations Act (White & Templeton v ACN 153 152 731 Pty Ltd (in liq) & Anor [2018] WASCA 119). 

1 2018 GTLAW.COM.AU 2018 NEW IPSO FACTO LAWS WHAT DOES IT MEAN FOR YOU? WHAT DOES IT MEAN FOR YOU? The Federal Government’s new ipso facto laws, which were introduced by the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Act 2017 (Cth), impose an automatic stay on the enforcement of ipso facto clauses in certain contracts entered into on or after 1 July 2018. In this insight, we summarise the new laws and take a closer look at how the reforms affect particular types of transactions.

For many suppliers, creditors and landlords, the threat of their counterparty’s insolvency is mitigated by a right to terminate or vary their contracts if there is an “insolvency event”. From July 1 2018 changes to the Corporation Act 2001 (Cth) may, however, limit those rights.

For company directors, the threat of personal liability for debts incurred in periods of actual or potential insolvency looms large. The creation of the ‘safe harbour’ provisions in the Corporation Act 2001 (Cth) that took effect in September 2017 may provide some welcome relief to company directors in periods of financial distress.

Following recent changes to the Corporations Act 2001 (Cth), parties to a contract may be unable to rely on a contractual right to terminate or modify the operation of a contract on the occurrence of certain insolvency-related events of a counterparty to the contract (commonly known as an “ipso facto” provision).

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.

It was first published by the Governance Institute of Australia.

From next week the much hyped stay on ipso facto rights in certain contracts will be law. The relevant Legislation, Regulations and Declarations1 commence this Sunday, 1 July 2018.