Might termination for insolvency now be a repudiation? ||| MTECC News edition 19.14
Might termination for insolvency now be a repudiation?
Many, if not all, construction contracts provide a party a right to terminate for the insolvency of the other party. For example, the right to terminate in AS4000-1995 arises where, in relation to a corporation:
- notice is given of a meeting of creditors with a view to the corporation entering a deed of company arrangement;
- the party enters a deed of company arrangement with creditors;
- a controller or administrator is appointed;
- an application is made to a court for the winding up of the party and not stayed within 14 days;
- a winding up order is made in respect of the party;
- the corporation resolves by special resolution that it be wound up voluntarily (other than for a members’voluntary winding up) and
- a mortgagee of any property of the party takes possession of that property,
(the Termination Right).
Amendments to the Corporations Act 2001 came into force on 1 July 2018 which have the effect of staying such termination rights for contracts entered into after the date of enactment.
- s. 415D provides that the Termination Right cannot be enforced if it relates to the reason for the making, or possible making, of an application to enter into a scheme or arrangement or compromise pursuant to s. 411;
- s. 434J provides that the Termination Right cannot be enforced if it relates to the reason for the appointment, or possible future appointment of, a managing controller; and
- s. 451E provides that the Termination Right cannot be enforced if it relates to the reason for being under administration, or possible future administration.
The stay on the exercise of the Termination Right is effectively perpetual. The relevant provisions provide that while the stay lifts, for example, at the end of the period of administration, the Termination Right cannot be exercised for the financial position that gave rise to the administration.
The public policy purpose of these amendments is plain. The Explanatory Memorandum states:
This reform is aimed at enabling businesses to continue to trade in order to recover from an insolvency event instead of these clauses preventing their successful rehabilitation.
As always, parties to contracts, and those advising them, must be very careful in exercising rights of termination. These reforms reinforce that position. A termination for insolvency where a stay operates may risk the terminating party repudiating the contract.
Congratulations to Michael Whitten QC on his appointment
Michael Whitten QC, the chair of MTECC, has been appointed as the next Lord Chief Justice of the Kingdom of Tonga, commencing on 1 September 2019. MTECC congratulates Michael on his appointment and wishes him and his family all the best in his new endeavour.
New MTECC committee for 2019-2010
At the recent AGM, MTECC elected a new committee comprised of the following members:
- Andrew Downie, chair
- Jennika Anthony-Shaw, treasurer
- Michael Sharkey, secretary
- Hugh Foxcroft QC, ordinary member
- Laina Chan, ordinary member
- Bill Stephenson, ordinary member
Many thanks for the hard work of the outgoing committee members, Michael Whitten QC (chair), Richard Manly QC (secretary) and Michael Heaton QC (ordinary member).
Society of Construction Law Australia Conference Perth 1 to 3 August 2019
MTECC was the gala dinner sponsor of the SoCLA national conference in Perth at the Westin from 1-3 August 2019. The conference and the dinner were well attended, with over 200 guests to both, and the topics during the day were very informative and helpful.
MTECC is looking forward to supporting the next SoCLA conference in 2020.