Ipso Facto Amendments: Do they apply to existing contracts?

//Ipso Facto Amendments: Do they apply to existing contracts?

The Government says the amendments apply only to contracts entered into after commencement. But what does the Bill say?

The proposed Ipso Facto amendments[1] impose a stay on the enforcement of contractual rights arising by reason of:

(a)        an application or entry into a compromise or arrangement under Part 5.1;

(b)        appointment of a managing controller over the whole of a corporations property; or

(c)        a company coming under administration.

Other updates will consider the scope of the amendments. This update considers whether the amendments relate to existing contracts.

At first glance the position seems clear. The Explanatory Memorandum [2] says the amendments only apply to rights under contracts, agreements or arrangements entered into after commencement. The Senate Committee Report[3] noted the statement in the Explanatory Memorandum, considered various submissions regarding application to existing contracts and recommended the Bill be passed without amendment.

But is that what the Bill says?

Schedule 1 Part 2 item 17 of the Bill reads:

“The amendments made by this Part apply in relation to rights arising under contracts, agreements or arrangements entered into at or after the commencement of this Part.”

The phrase “at or after” commencement is ambiguous compared with the more usual “on or after”.  Contracts entered into as at a particular date would ordinarily include contracts entered into prior to that date. Is that what is intended by “at” in this context?

A review of prior Corporations Act transitional provisions in Chapter 10 discloses frequent use of the phrase “on or after” in relation to date. However there appears to be no prior use of the phrase “at or after” in Chapter 10.

The phrase “before, at or after” is occasionally used[4] and inclusion of the word “before” removes ambiguity in those cases.

In two Parts of Chapter 10 reference is made to a status applicable at a particular time, which may have come into effect prior to that time:

    • Part 10.23 – Transitional Provisions Relating to the Clean Energy Legislation (Carbon Tax Repeal) Act 2014

     s.1544 – “This section applies if, as at the end of the designated carbon unit day, an Australian financial services licence is subject to a condition ….”

    • Part 10.25 – Transitional Provisions relating to the Insolvency Practice Schedule (Corporations)

     s.1553(3) “ … a person … is not taken to be registered as a liquidator … on the commencement day if, at the beginning of that day:

(a)        the person is an insolvent under administration; or

(b)        the person is dead”

A Court could have to determine the issue if an Administrator asserted that the exercise of a right was stayed under a contract entered into prior to commencement. In doing so the Court would take into account the intention set out in the Explanatory Memorandum.

But why should Parliament use a novel ambiguous phrase and create uncertainty if it has a clear intention.

If it is intended that the Ipso Facto amendments will apply only to contracts entered into on or after commencement then the Bill should be amended to say so.

If you wish to seek advice in relation to these matters, please contact Andrew Cox on (03) 9614 7707.

[1] Treasury Laws Amendment (2017 Enterprise Incentives No.2) Bill 2017 (“the Bill”); Schedule 1 Part 2.

[2] at 2.99.

[3] Senate Economics Legislation Committee, August 2017 at 2.56-2.16 and 2.78.

[4] s.1501, s.1516, s.1533.

2018-08-28T15:19:32+10:00October 11th, 2017|Categories: Insolvency|Tags: |