Consultation Process on Ipso Facto Insolvency Regulations Begins

by K&L Gates LLP

K&L Gates LLP

In September 2017, the Australian government introduced the most significant reforms to Australia's insolvency regime for the past 30 years with the enactment of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Act 2017 (Cth).

A key part of the reforms includes a stay on the enforcement of certain contractual rights (known as ipso facto clauses) when a contractual counterparty enters into an administration, a scheme of arrangement or compromise, or a receivership over the whole or substantially the whole of its assets. The stay also applies more generally to the enforcement of ipso facto clauses that are linked to the company's financial position while it is subject to one of these insolvency or reconstruction processes.

Because of the potentially wide-ranging impact of the reforms, certain types of contracts and certain types of rights were to be excluded from the operation of the stay by regulation and declaration.

The long awaited draft regulations and declaration have now been released. In this alert, we highlight some of the key exceptions and the potential impact on certain types of counterparties and transactions.

For more background on the new ipso facto laws, please see our previous Legal Insight: 'Navigating the Insolvency Reforms – Impending Changes to Contractual Termination Rights'.

The draft regulations and consultation process

The draft regulations and draft declaration will amend the Corporations Regulations 2001 (Cth) by inserting new provisions that prescribe the kinds of rights and contracts, agreements and arrangements entered into after 1 July 2018 that will not be subject to the stay on ipso facto clauses. Each of these documents (including the draft explanatory statements) is available for public comment on the Treasury website, with the consultation process due to end on 11 May 2018.

As outlined by the federal government in the accompanying draft explanatory statements, the exceptions are an acknowledgement that there are some situations where staying the operation of ipso facto clauses is either 'unnecessary' or 'undesirable'.

The purpose of the proposed amendments is to ensure that, in these circumstances, certain types of ipso facto clauses will remain enforceable against a counterparty despite the fact that it is in a formal insolvency or reconstruction process.

The proposed exceptions to the stay are categorised as follows:

  1. Excluded types of contracts, agreements or arrangements: The draft regulations will prescribe the kinds of contracts, agreements or arrangements that are to be excluded from the stay. The effect of the exclusion is that all rights arising under the excluded contract, agreement or arrangement will not be subject to the stay. 
  2. Excluded rights: The draft declaration will prescribe the kinds of contractual rights that are to be excluded from the stay. Unlike the exceptions listed in the draft regulations, the prescribed rights will be excluded from the stay irrespective of the kind of contract, agreement or arrangement which gave rise to them.

Initial commentary on the exceptions to the stay

The list of exceptions proposed by the government include, to a large extent, the contracts and contractual rights which it initially indicated, and which industry participants anticipated, would be excluded from the stay. However, the list also goes beyond what was initially proposed and anticipated, and a number of the draft exceptions appear to be defined more broadly than what would arguably be required to fulfil the policy reasons set out in the explanatory statements.

Some of the additional contracts and rights that will be excluded are, in our view, commercially sensible and appropriately aimed at furthering the policy aims of the law reforms. Examples include:

  1. Arrangements for the sale of a business: contracts for the sale of all or part of a business, including by way of the sale of securities or financial products, will be excluded from the application of the stay. The explanatory statement recognises that the sale of a business in a distressed situation is often an alternative to a formal insolvency process. Any curtailing of the rights of a purchaser under such a contract may impact on the availability of a sale as a business rescue alternative and may also impact on the price purchasers are willing to pay in distressed acquisitions.
  2. Uplift clauses and indemnification: the declaration has clarified that financiers will continue to be able to enforce rights to charge a higher rate of interest upon an insolvency event of default to compensate for increased risk and also to rely on their indemnification rights to cover the additional increased costs faced by financiers in a distressed situation. If such rights were not excluded, financiers may have had to consider repricing their financial products to build in any additional risk they may face should the borrower become distressed, which is likely to have made financial products more expensive for many borrowers. 
  3. Termination rights in standstill and forbearance arrangements: financiers that have agreed to refrain from enforcing their rights upon the occurrence of an event of default will retain the right to terminate any such standstill or forbearance arrangement. As noted in the explanatory statement, standstill and forbearance arrangements can be important restructuring tools that give counterparties breathing space to attempt to turnaround the business. Any curtailing of the rights of financiers under such arrangements could make them reluctant to offer this breathing space to a borrower and may therefore be counterproductive to the policy aims of the law reforms.
  4. Rights of novation and assignment: secondary debt trading is often another tool that is used to facilitate restructuring in circumstances where one or more existing financiers do not wish to, or cannot, participate in the proposed restructuring and there are alternative financiers or funds who are willing to trade into the debt and have the ability to do so. Therefore, curtailing rights of novation and assignment would have been counterproductive to the aims of the law reforms. 

However, some of the exclusions will require close analysis by industry participants to determine the extent to which they achieve the government's policy aim of preventing ipso facto clauses from reducing the scope for a successful restructure or the sale of a business as a going concern. Examples include:

  1. Contracts, agreements or arrangements to which a special purpose vehicle is a party: the government in its initial consultation process indicated that securitisation arrangements involving special purpose vehicles would likely be excluded from the operation of the stay. The commercial rationale behind the exclusion was that securitisation arrangements were the result of complex negotiations between sophisticated counterparties and therefore should not be 'undermined'. However, the proposed exclusion in the regulations is not on its face limited to circumstances involving securitisation arrangements. Whilst a 'special purpose vehicle' is not defined in the proposed regulations, its meaning is clarified in the accompanying explanatory statement where it is referred to as 'an entity such as a company, trust or partnership that is created to carry out a specific purpose or arrangement'. Such an entity is widely used for various commercial purposes outside of securitisation and a general exclusion for arrangements to which a special purpose vehicle is a party appears to provide considerable scope for structuring transactions to avoid the stay on ipso facto clauses.
  2. Appointment of receivers without acceleration of the debt: in circumstances where a borrower has appointed an administrator, the ipso facto reforms currently allow a financier to appoint a receiver over the top provided that the receiver is appointed to the whole or substantially the whole of the company's property. However, if the principal debt cannot be accelerated because of the operation of ipso facto reforms, the receiver appointed to the company's assets will have to deposit any realisation proceeds from the sale of such assets into a suspense account (assuming the security document permits the receiver to do so) until a future event of default (such as non-payment or non-performance) occurs, allowing the financier who appointed the receiver to accelerate the principal debt. 
  3. Circulating security interests: the government has proposed a new exclusion to the stay for rights which are self-executing provisions to the extent that the right provides (among other things) that property that was subject to a circulating security interest automatically becomes subject to a non-circulating security interest, a floating charge over property automatically operates as a fixed charge or that a grantor's right to deal with certain property in the ordinary course of business comes to an end.
    In the context of the Personal Property Securities Act 2009 (Cth), a circulating security interest extends to assets of a company, including its inventory, cash at bank and accounts receivable. As such, careful consideration will need to be given as to the extent to which this proposed exclusion promotes the aim of the ipso facto law reforms, particularly where the automatic crystallisation of revolving assets such as inventory will likely have serious implications on the ability of the company to trade. In the case of administration, the administrator could presumably continue to rely on section 442C of the Corporations Act to trade assets in the ordinary course of the company's business. 
  4. Guarantees without acceleration of the principal debt: there are no general exclusions for rights of acceleration (a common ipso facto clause) other than a limited exclusion to allow for acceleration to the extent necessary to take advantage of set-off and netting provisions. While most guarantees are drafted as primary obligations, if there are no secured moneys owing because the financier does not have the ability to accelerate, there will be no utility in seeking to enforce against a guarantor even if that guarantor is not insolvent. Going forward, consideration should be given by financiers as to whether guarantees should be drafted to extend not only to accelerated primary debt, but to also provide that the guarantor must pay primary debt which would have been accelerated but for the inability of the financier to exercise its acceleration rights under the ipso facto clause.
  5. Government licences and permits: the regulations exclude any contract, agreement or arrangement that is a licence or permit issued by a government authority or body. The purpose of this exclusion, according to the explanatory statement, is that the conditions placed on permits and licences are often there for public safety and the greater good of the community and therefore the government authority or body should be allowed to continue exercising termination (and other ipso facto) rights if those conditions are not satisfied. However, the exclusion in the regulations is framed widely, and not linked to any public interest argument. The revocation of a licence or permit could have an impact on the ability of a company to return to solvent trading. 
  6. Novation, assignment and variation: the regulations have clarified that a contract that is entered into prior to 1 July 2018 can be novated, assigned or varied and the resulting new contract or arrangement will continue to fall outside the scope of the new laws. This means that counterparties to existing contracts can extend the term of their arrangements, or assign/novate their rights to another party, and continue to rely on any ipso facto rights contained within those contracts. While the justification behind this exclusion is that the laws are not intended to change the contractual relationship that existed between parties prior to 1 July, this exclusion will result, at least in the medium term, in there being two different classes of contracts: those inside the regime and those outside. This in turn means that a company in administration, for example, will not get the full benefit of the new laws if a proportion of its contracts fall outside the regime.

Next steps

Once the consultation process has concluded, we expect that the finalised regulations and declaration will become available prior to the 1 July commencement of the new laws. Some of the issues we have noted above may well be ironed out during the consultation process. In any event, it will be interesting to see the scope and final list of excluded rights and contracts and the impact that these new laws will have on the financial services and restructuring sectors and beyond.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© K&L Gates LLP | Attorney Advertising

Written by:

K&L Gates LLP

K&L Gates LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at:

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit
  • New Relic - For more information on New Relic cookies, please visit
  • Google Analytics - For more information on Google Analytics cookies, visit To opt-out of being tracked by Google Analytics across all websites visit This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at:

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.