Vol 17 (2020) - Issue 3

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Return of the MAC: The English Courts’ Approach to Material Adverse Change Clauses

Synopsis

In light of the significant business downturn occasioned by the COVID-19 pandemic, we anticipate that the meaning and effect of 'Material Adverse Change' or 'MAC' clauses will be of critical potential importance to all businesses reliant on debt financing, and the professionals who advise them.
MAC clauses are commonplace in loan facility agreements and are provided for in substantially all loan facilities on the Loan Market Association standard forms (save for certain investment grade debt). MAC clauses are also found in business acquisition agreements (most typically, in the UK at least, in public acquisitions) and other more general contracts (such as long-term supply agreements in the commodities context). In the interests of brevity we only consider in this article the paradigmatic case of MAC clauses in loan facility agreements. However, the principles applicable to the consideration of MAC clauses in loan facility agreements will have general application to MAC clauses in other business contexts.