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ARTICLE · 19 APRIL 2017

Franchise Alert – Termination for insolvency under threat

Norton Rose Fulbright Australia
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This draft federal legislation to reform insolvency laws includes a provision that will worry many franchise systems.

AustraliaCorporate/Commercial Law
Stephen Giles
Stephen Giles
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The Federal Government has released draft legislation to reform insolvency laws that includes a provision that will worry many franchise systems.

The provisions which purport to prohibit so-called "ipso facto" termination clauses may well be supported by insolvency practitioners, but could well prevent franchisors from terminating a franchise agreement in the event of a franchisee's insolvency. The statement by the Minister for Revenue and Financial Services Kelly O'Dwyer asserts that the legislation will make "ipso facto clauses, which terminate or amend a contact merely because a company has entered into a formal insolvency process, unenforceable "1 Most franchise agreements would have such a clause, or at least permit a franchisor to terminate the franchise agreement in the event of insolvency.

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