The Corporations Amendment (Stay on Enforcing Certain Rights) Regulations 2018 (Cth) (Regulations) and the Corporations (Stay on Enforcing Certain Rights) Declaration 2018 (Cth) (Declaration) set out types of contracts and contractual rights that will not be subject to the stay. The contracts and rights which are potentially relevant to the construction industry are discussed below.
Regulations: prescribed types of contracts which are not subject to the stay
Contracts which relate to the following matters will not be subject to the legislative stay include the following:
- National security, border protection, defence capability
- Public hospitals and public health services
- Special purpose vehicles for PPPs
- Novation/ variation of pre-1 July contracts
- A contract, agreement or arrangement entered into or renewed on or after 1 July 2018, but before 1 July 2023, as a result of:
- novation of, or the assignment of one or more rights under a contract, agreement or arrangement entered into before 1 July 2018; or
- variation of a contract, agreement or arrangement entered into before 1 July 2018, is not subject to a stay.
Building projects with total payments of at least $1 billion
Due to the complex nature of large scale construction projects, the arrangements for or that support the completion of the project have been excluded for a period of 5 years. This transitional period recognises the nature of such projects, and provides certainty and stability about the operation of the ipso facto stay to these construction projects, while allowing parties time to consider how to structure affected arrangements in the future.
The provision intends to capture the work done on, or goods or services provided to, multiple work sites which, collectively, form part of a particular project. This recognises that a construction project, such as for a residential suburb or a railway or road, might take place at more than one site.
The provision draws on the meaning of “building work” in section 6 of the Building and Construction Industry (Improving Productivity) Act 2016 (BCI Act). This is a broad definition, with exclusions for extraction of oil, gas and minerals and for single dwelling-house projects (but not projects for multi-dwelling developments with at least 5 single dwelling-houses).
The provision also includes certain items of work within the meaning of “construction work” in section 5 of the Building and Construction Industry Security of Payment Act 1997 (NSW) (the NSW Security of Payment Act). According to the Explanatory Statement, the reason for the inclusion of reference to the NSW Security of Payment Act in addition to the BCI Act was to extend the scope of the exclusion to the matters covered in section 5(1)(d) and (f) in the NSW Security of Payment Act, being:
- the external or internal cleaning of buildings, structures and works, so far as it is carried out in the course of their construction, alternation, repair, restoration, maintenance or extension; and
- the painting or decorating of the internal or external surfaces of any building, structure or works;
as long as they are not subject to the exclusions in section 5(2) – for example, mining for oil, gas or minerals.
The provision also extends to “related goods and services” as defined in section 6 of the NSW Security of Payment Act (for example, materials and components to form parts of buildings, plant and materials for use in connection with carrying out the work, labour, design and other services – refer to section 6 for the full list).
While the provision draws on definitions in the NSW Security of Payment Act, those definitions are intended to extend to work, goods and services provided anywhere in Australia.
The exclusion only applies where the “total payments under all contracts, agreements or arrangements for the project for work, goods or services of those kinds is at least $1 billion”. The threshold of $1 billion is intended to be tested against the value of all payments made under all arrangements for the project for work, goods or services of those kinds in subparagraphs (zo)(i) to (iii). This could require the head contractor or procurer to work out the value of the payments to be made under all contracts and subcontracts for the particular project, and determine whether they come to at least $1 billion.
This aspect of the exclusion appears likely to create uncertainty and difficulties in application – for example it may be difficult for parties lower down the contract chain (eg subcontractors) to ascertain whether the overall project exceeds the $1 billion threshold.
Subclause (zp) intends to capture all subcontracts that have been entered into to enable the satisfactory completion of the primary project, and that also provide work, goods or services, so that these arrangements are excluded from the operation of the ipso facto stay.
Declarations: kinds of rights to which the stay does not apply
In addition to the exempted kinds of contracts described above, the Declaration also exempts certain kinds of rights under all contracts. The exempted rights that are likely to be relevant to those in the construction industry are:
- Rights to indemnity
- Rights of set off
- Rights to assign, transfer or novate rights or obligations
- Rights to step in.
In relation to rights to step in, the Declaration describes the protected right as a right:
- to perform obligations;
- to engage another person to perform obligations;
- to enforce rights; or
- to engage another person to enforce rights;
of the insolvent party under the contract, agreement or arrangement.
The exclusion was amended from the exposure draft in the final version to confirm that a party can engage another person to perform the obligations or enforce the rights.
The Explanatory Statement states that these arrangements are designed to keep the contract on foot where it might otherwise have been terminated – they should not be disturbed as they support the overarching policy objective of allowing a business to continue and/ or maintain value for the insolvent or restructuring entity.