The Efficacy of Insolvency-Related Termination Clauses in Commercial Agreements

Abstract

It is common practice for contracting parties to include provisions for termination or variation of their commercial agreements on a party’s insolvency. These insolvency-related termination clauses are usually aimed at insulating solvent parties from a counterparty‘s insolvency. Although parties are bound by the terms of arm’s length contracts, the commencement of formal insolvency proceedings may invalidate unambiguous and copper-bottomed contractual rights. Insolvency-related termination clauses are no exceptions. A core objective of corporate insolvency law is to impose a mandatory collective regime for resolving insolvencies. This collective regime supplants the free-for-all individual enforcement actions against insolvents. This two-part article explores the efficacy of insolvency-related termination clauses which are sometimes regarded as boilerplates. The first part examines primary principles of insolvency law against which the enforceability of insolvency-related termination clauses may be assessed. The second part will examine the enforceability of insolvency-related termination clauses in certain commercial agreements. The first part of this article examined the core principles of insolvency law against which the enforceability of insolvency-related termination clauses may be gauged. This concluding part examines the enforceability of insolvency-related termination provisions in certain commercial agreements.