Are Your Automatic Termination Clauses Still Valid?

New Amendments By The QBCC

Observant readers might have noticed the warning on the QBCC website at the bottom of their contracts page alerting readers to the need to review their standard form QBCC contracts which might be out of date. From July 2018 the Treasury Laws Amendment (2017) Enterprise Incentives No.2 Act 2017 (call it the ‘safe harbour act’) provides for new ‘safe harbour’ provisions that potentially negate all those old self-executing provisions such as for the automatic termination of your contract once the other party commits an act of insolvency.

In essence the new s415FA of the safe harbour act provides that ‘self-executing’ provisions in your contract cannot start to apply except by court order and that rights so arising are suspended if the company ‘announces’ that it is applying to restructure or compromise its obligations to avoid a winding up in insolvency (usually under section 411 of the Corporations Act 2001). The suspension of rights applies from the time of the public announcement, or application to court, until the end of the application process or any arrangements made with creditors.

So, if you’re making the announcement you’ll need to make it publicly, and probably will need to serve it on any interested parties. You’re going to want to talk to the QBCC and your bank manager first, and you’d better have your accountant ready with your written plan explaining why your plan will result in a ‘better outcome’ than liquidation or administration.

What To Do If You Receive An Announcement?

If you’re on the receiving end of such an announcement you’ll need to apply to court if you must, for example, replace the subcontractor to finish your own contract on time without being prejudiced. You probably want to try for consent first because it remains to be seen how receptive the courts will be to such applications, especially of the income from your contract is the main source for the subcontractor’s proposed plan.

All of which means that you might need to revisit your existing contracts to incorporate the new provisions or risk parts of your contracts not being enforceable.

Want To Learn More?

Want to find out more about how this could affect you? Contact building law specialists Michael Obrien Lawyers today.

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