Most joint venture agreements will contain default provisions which are triggered upon breach of one of the parties to the agreement. However, whilst a party’s failure to pay following a demand is often the focus of default provisions, default may also be triggered when a joint venture partner is in financial difficulty and/or is insolvent.
The ability to utilise these clauses may well give the solvent parties the option to withdraw from the joint venture in advance of any actual insolvency, or to take full control of joint venture interests and/or assets through compulsory transfer provisions. This reduces the risk of joint venture assets forming the subject of an insolvency practitioner’s enquiries, and also reduces the risk of being caught in a joint venture with an undesired third party
Insolvency-related default clauses can vary widely in their drafting, including the time at which they may be triggered. The recent Government announcement as to the suspension of wrongful trading rules and the position being adopted by the courts to slow down or halt winding up petitions and administration orders mean that formal insolvency procedures may well be relaxed or delayed. However many default clauses will apply in situations which are short of formal insolvency.
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