Some impacts for the construction industry
From a builder's perspective, it is important to note that the statutory stay applies to contractual rights. The ispo facto reforms will not affect statutory rights e.g. rights accruing under the security of payment legislation or through statutory liens.
For principals, certain (temporary) step-in rights are also protected from the statutory stay. However, the permanent replacement of an affected person e.g. by procuring a novation of their rights and obligations under a contract, will not be protected and will be subject to the stay.
The language of the exceptions is open to interpretation and, as they are new, there is no judicial direction to rely on. Accordingly, the detailed wording of each exemption needs careful consideration to ensure that clients take advantage of the exemption.
For example, while a ‘PPP’ and ‘project finance’ exemption may exist, not all contracts or counterparties within the complex suite of contractual arrangements comprising those transactions will necessarily have the benefit of those exemptions.
Depending on the circumstances, a builder, subcontractor or a principal may be a key creditor in the insolvency of a person involved in a construction project. The broad protections given to financiers and financing arrangements and the Project proponent (in the case of a PPP) means that some creditors to a project (eg, suppliers and builders being paid in arrears) may be disadvantaged, in relative terms, to other creditors (eg, project financiers, lenders under syndicated loans). That is, some creditors to a project will be unfettered in the exercise of their rights, while other creditors and counterparties will be unable to exercise their insolvency-event triggered rights (at least until other payment or performance defaults arise).
Some impacts for the property industry
There will be impacts for the property industry, for example, leases, which are not covered by the exemption. However, the situation largely remains unchanged. Already landlords usually take into consideration a number other overriding rights or restrictions not specifically addressed in a lease before terminating it. Going forward, a landlord will not be able to terminate for an insolvency event alone. While specific changes to the termination clauses in leases are not mandatory, we recommend that termination rights for insolvency be made subject to Chapter 5 of the Corporations Act 2001 (Cth) which will draw to the parties’ attention that the new laws have been taken into account and must be complied with.