COVID-19 and material adverse change clauses
As COVID-19 infections continue to spread, companies continue to suffer cash and liquidity constraints as a result of temporary business closures and diminished consumer demand. As a result, parties to a contract may seek to invoke the material adverse change clause (MAC) to terminate or renegotiate contracts. This article aims to shed light on the MAC provision in the context of M&A and project financing and whether the pandemic qualifies as a material adverse event. What is a MAC / MAE? A material adverse change (MAC) or material adverse event (MAE) is a clause commonly found in acquisition and project financing agreements that give the buyer (in M&A deals) or lender (in financing deals) the right to terminate the contract or a basis to renegotiate the transaction, due to adverse business or economic developments occurring between the signing and closing of the agreement. MAC provisions typically acknowledge that business impacts attributable to a general economic downt...