Termination clause

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Law - contract.

A termination clause is a provision in a contract that, on the ocurrence of specified events, either:

  • Automatically terminates the contract; or
  • Gives one party the right to terminate.

Some protection for financially distressed companies
"The [Corporate Insolvency and Governance Act 2020] provides that certain provisions in supply contracts will cease to have effect if the counterparty becomes subject to an insolvency procedure...
This includes provisions for automatic termination and provisions that allow the supplier to terminate or do ‘any other thing’ (such as change pricing) by reason of the company entering into an insolvency procedure...
Suppliers will also be prevented from making payment of outstanding debts a condition of continued supply.

This measure offers some protection for distressed companies, but it will not apply to a wide range of financial contracts or where one or both of the contracting parties is in the financial services sector.
Nor will it cover all types of commercial arrangements.
For those that are in scope, it is likely to lead to greater focus on including and exercising early-warning triggers."

The Treasurer magazine, October 2020, p40 - Slaughter and May.

See also