The cornerstone of a standard insolvency proceeding is the resolution of a debtor enterprise by keeping it as a going concern, instead of its liquidation. In order to facilitate the same, the insolvency resolution laws seek to ensure that a corporate debtor runs as a going concern even during the time the resolution process takes place. The same entails that the supply of commodities such as electricity, water, raw materials is kept unabated.
However, the same results in a conflict between the “insolvency” proceedings and a particular type of contract, namely, ipso facto contracts. IPSO FACTO clauses are the terms in an agreement that allows a party to terminate the contract in the events of default which generally includes the commencement of voluntary or involuntary insolvency proceedings, the appointment of insolvency representative, amongst others.
This article explores the validity of these clauses. To read more, click here!
Obiter Dictum 