Validity and Effects of the Ipso Facto Termination Clause of Insolvency in Contracts between Equals

Abstract

The ipso facto insolvency termination clause is a very common contractual provision in contracts between equals, which aims to authorize one party to terminate the contract as a result or consequence of insolvency, judicial reorganization, or other forms of insolvency proceedings of its counterparty. Even though it is a common clause, there is significant doctrinal discussion about its validity and effectiveness. In this work, after presenting the general aspects of the express termination clause and the termination condition in the case under study, we will review the doctrinal and jurisprudential interpretation of the rules of insolvency laws in force throughout the last century, comparing these lessons with the current understanding of a portion of the doctrine that, in light of Law 11.101/05, defends the invalidity of this contractual provision in the context of insolvency. This doctrinal current will then be contrasted with the position of the doctrine identified as civil law, which preserves the classic interpretation that the stipulation of an ipso facto insolvency termination clause is not prohibited in our legal system. Based on this comparison, we will seek to list minimum parameters, extracted from jurisprudential decisions and doctrinal teachings, capable of assisting the magistrate in defining the ineffectiveness or not of the termination clause in each case.