Terms of the license agreement; a licensor may be free to terminate the license immediately upon insolvency.
By virtue of the "ipso facto" stay regime, however, an IP licensor may be prohibited from exercising its termination rights purely on the grounds of insolvency of the licensee.
There are three main forms of insolvency procedures in Australia: receivership, voluntary administration and liquidation. Only a liquidator has the formal power to disclaim any contracts that he or she considers unprofitable (including IP license agreements). In practice, a receiver and/or voluntary administrator may also repudiate any contracts, which require performance by the insolvent company.
In view of the ipso facto regime, it is vital for any IP licensor, on becoming aware of the insolvency of a licensee, to promptly seek legal advice on the steps it should take to protect its interests.
This guide does not address the Australian restructuring regime in effect from 1 January 2021, intended to apply to small businesses, and only capable of being applied where the aggregate debts of the company do not exceed AUD1 million
The Corporations Act 2001 (Cth) ("Corporations Act") and various pieces of subordinate legislation govern insolvency proceedings generally, with IP license agreements treated no differently to other contracts.
It is worth noting that a license of intellectual property (including designs, patents, trademarks, circuit layouts, copyright and plant breeder's rights) might attract a security interest if the license is used as collateral (for example, as security for a loan). Security interests in relation to intellectual property are dealt with under the Personal Property Securities Act 2009 (Cth).