Originally Posted by
SecretAngel
... the administrator has the power to cancel contracts ...
An administrator cannot cancel contacts unless there is a clause in the contact permitting the company to void the contract if it enters administration. These are known as
ipso facto clauses. Such clauses that work in favour of the party entering administration are extraordinarily rare.
Ipso facto clauses normally run the other way, they typically provide certain rights of relief to one party if the other party enters administration. However a recent amendment to the
Corporations Act 2001 (specifically section 451E Stay on enforcing rights merely because the company is under administration etc.) now limits the enforcement of certain rights arising from
ipso facto clauses.
A
liquidator can disclaim a contact outright. The best that an administrator can do is repudiate contracts requiring performance by the company that the administrator cannot meet, such as the payment of monies that the administrator does not have. A repudiated contract is not cancelled, it is still in effect and the counterparty can sue for breach of it.