Despite the exemption under the regulations, the ipso facto reforms may still have an impact on mergers and acquisition transactions through the application of the reforms to ancillary agreements to transactions for the sale of a business. It remains unclear whether such agreements will be caught by the exemption. If the exemption does not apply, the reforms could have a significant impact on the operation of a variety of agreements which facilitate mergers and acquisitions or govern the relationship between the buyer and seller after the transaction has taken place.
Some examples of ancillary agreements which could be affected include transitional service agreements, IP licence agreements, lease agreements and escrow agreements. The key consideration will be whether the subject matter of the ancillary agreement can be properly characterised as a “contract, agreement or arrangement” for the sale of a business and therefore captured by the exemption. A broad interpretation of “arrangement” would suggest that the exemption would apply provided the terms of the ancillary agreement clearly establish that it supplements the sale agreement or governs an aspect of the relationship between the buyer and seller in respect of the sale agreement.
It remains to be seen how broad an interpretation the expression “arrangement” will be given and it may well be that many types of ancillary agreements are construed as being separate to the sale of business transaction and therefore falling outside of the ipso facto exemption. A cautious approach to contractual drafting will likely be required, particularly if there is any element of distress in the acquisition target.
Put and call arrangements
Another area of uncertainty is the application of the reforms to put and call arrangements which often include clauses allowing the parties to bring forward their put or call in circumstances where the counterparty experiences an insolvency related event. The question of whether the exemption in the regulations applies to put and call arrangements is complicated by the fact that the arrangements do not provide for the sale of a business unless and until the put or call is exercised. Again, adopting a broad interpretation of “contract, agreement or arrangement” would suggest that put and call arrangements might be caught by the exemption.
Any contracts entered into under pre-1 July 2018 option arrangements are unlikely to be subject to the reforms. This is because the better view in Australian law is that a put or call option is to be characterised as a conditional contract which becomes unconditional upon the exercise of the option by the grantee and the satisfaction of any other conditions prescribed by the option terms (Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57 at 76 and Grepo v Jam-Cal Bundaberg Pty Ltd  QCA 131). According to that line of authority, no new contract is entered into on the exercise of the option.