Ipso Facto

"Ipso facto" clauses

"Ipso facto" clauses typically provide that an event of default under a contract is either the institution of one of the formal insolvency procedures (voluntary administration, scheme of arrangement, receivership) or some related event. These clauses have inhibited the use of formal procedures for the restructuring of a company as it is often the case that the continuation of certain contracts will be important for the ongoing operation of a company's business.

However, as a result of recent legislative reforms, but subject to certain exceptions (including that the clause is in a contract undertaken on or after 1 July 2018), those clauses may no longer be relied upon as the grounds for terminating a contract.¹ Of course, that does not preclude the counterparty relying on some other ground of default (eg non-payment) as a basis for terminating the contract. Although, as will be seen, the voluntary administration procedure provides some relief for the company even in that circumstance.