COVID-19 AS A MATERIAL ADVERSE CHANGE IN A CONTRACT.

COVID-19 AS A MATERIAL ADVERSE CHANGE IN A CONTRACT.  

Material Adverse Change (MAC) is not usually clear cut and will depend on the exact provision of the contract. In share purchase arrangements, mergers and acquisitions, the MAC provision outlines conditions that allow a party to walk away from a transaction. It protects the buyer/investor against any adverse changes to the business during a specific period. For a loan arrangement, MAC triggers a default and allows the lender demand early repayment if an event has had an adverse material effect on the borrower’s ability to repay the loan.

Investors and lenders need to review their contracts to determine whether the pandemic has triggered a MAC. An adverse change is material if it has significantly affected the business or the borrower’s ability to perform its obligation. It is likely that the pandemic will come to an end soon. Therefore, a major issue to consider under MAC is whether the borrower’s ability to perform under the contract re- mains adversely affected after the pandemic ends. If the borrower’s ability to perform is restored at the end of the pandemic, then it is likely that the court may regard the adverse change as immaterial.

REMEDIES FOR A PARTY’S FAILURE TO PERFORM ITS OBLIGATION UNDER CONTRACT TAX CORPORATE

The aggrieved party can go to court or any other dispute resolution mechanism under the contract. They can claim damages for breach of contract or seek for specific performance.