On 20 May 2020, the UK Government published the Corporate Insolvency and Governance Bill (“CIGB” or the “Bill”) which proposes several changes aimed at improving the chances of company rescue and better overall returns for creditors. One of the proposed changes is to restrict parties’ ability to exercise contractual termination rights where a company enters into an insolvency or restructuring procedure, meaning that for most suppliers and supply contracts a termination clause will be ineffective upon insolvency. This will align the approach in the UK with that of a number of other jurisdictions.
These clauses can be referred to as “ipso facto” clauses; ipso facto translating to ‘by the very fact’. This extrapolates to situations where a party seeks to terminate a contract by the very fact of insolvency.