What circumstances restrict enforcement?

You cannot enforce a right under an ipso facto clause if the right arises from the trigger events noted below. Ipso facto clauses triggered by any of these events are ‘stayed’.

The Trigger events are:

1. Voluntary administration;
2. Receivership over all assets;
3. Creditors’ scheme of arrangement; and
4. Events related to the party’s financial position (if any of 1 to 3 above has also occurred).

Exclusions

Carve outs by regulation or declaration:

Drawstop

A lender is not obliged to fund an undrawn commitment under a facility agreement while a stay is in place.

Negative pledges

A simple negative pledge restriction (for example not to grant security) should not be affected.

What financing clauses will be affected?

Default rights arising from:

• Insolvency
• Financial covenant breaches
• Rating downgrades
• Material Adverse Event (if related to financial position)
• (sometimes) Cross default

Affecting default rights to (among others):

• Accelerate debt or enforce security
• Terminate a lending commitment
• Revalue an asset
• Apply insurance proceeds in debt reduction
• Lock up distributions and equity returns