Amendments will remove rights to terminate a contract when a supplier becomes insolvent or goes into administration.
From 1 July 2018, amendments to the Corporations Act 2001 (Cth) will remove the right of a terminating party to terminate a contract when a counterparty:
- becomes insolvent
- has a managing controller appointed
- goes into administration.
The suite of standard whole-of-government construction contracts will be updated by 30 June 2018 to reflect these changes.
Several contractual measures against a distressed company will be abolished including the right to:
- terminate the contract
- modify the contract
- call in bank guarantees
- step into the contract
- suspend the works.
The rationale for these new laws is to enable companies in financial distress to have a chance of trading out of their situation rather than going into actual insolvency (liquidation).
Currently most construction contracts provide a right of termination on insolvency.
Agencies should consult their legal teams to update documentation to reflect the amendments.
For further information please contact ConstructionSuppliers@finance.nsw.gov.au