11 Sep 2018

The ipso facto stay: What is in, what is out

Since 1 July 2018, for new contracts, there are wide-ranging restrictions on parties seeking to exercise contractual rights under ipso facto provisions. What provisions are covered? Can I rely on the ipso facto provision that is in my company's favour?

If you would like to know more about the ipso facto stay, go to our 2018 edition of From Red to Black.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.


Australia's new ipso facto regime has finally come into effect. It applies to all contracts, agreements and arrangements entered into after 1 July 2018 so that a party is not entitled to exercise any of its rights under a contract including the right of termination where a counter party enters into some form of insolvency process such as a voluntary administration process, or makes an application for a scheme of arrangement, or has a controller appointed to it.

Certain contracts and contractual rights are however excluded from the operation of the ipso facto stay and are contained in the recently released Regulations and Declaration. Where a contract is excluded from the operation of the ipso facto stay, all rights that are included in that contract will be exempt from the operation of the ipso facto stay.

The Regulations themselves contain a very lengthy list of contracts which are excluded, such as:

  • Government licences and permits;
  • any contracts or arrangements which relate to Australia's national security, public hospitals or health services;
  • any business or share sale agreements; and
  • any contracts or arrangements which involve a special purpose vehicle and which provide for securitisation, a public private partnership or project finance arrangements.

Various construction contracts have also been excluded from the operation of the ipso facto stay as defined however there is a catch: the value of the construction project needs to be in excess of $1 billion and there is also a five-year transitional period for construction contracts.

The Declaration lists those contractual rights that are excluded from the ipso facto stay. These are mostly in relation to finance arrangements and include for example rights which relate to set-off and netting to combine accounts, rights which relate to set-off and netting to combine accounts, and rights of novation and assignment. There are certain step-in rights that are also excluded and other rights where a secured creditor is entitled to appoint a receiver or a controller over assets in respect of which a receiver or controller might have already been appointed.

We encourage you if you are entering into any contracts with an Australian corporate entity to make yourself familiar with the ipso facto regime. Importantly you must review and make yourself familiar with those contracts that are excluded in the Regulations or any of the contractual rights that are contained in the Declaration as you may wish to take advantage of them.