The MAC clauses are intended to protect lenders from unforeseen events or changes in the borrower`s circumstances in one way or both: here we examine whether COVID-19 and the resulting business dysfunction can reasonably be considered MAC in a typical commercial loan. In IBP, Inc. v. Tyson Foods Inc. , which was involved in the acquisition of a beef and hog trader, the target company admitted that there was no MAC defined as “any event, occurrence or development of circumstances or facts that could reasonably be expected to have a material or reasonably foreseeable adverse effect… (financial or non-financial), the business, assets, liabilities or results of operations of [lesBP] and [their] subsidiaries].  In retaining the purchaser`s assertion, the Tribunal found that, although the target did not achieve its projected quarter result, its activity is subject to the cyclical nature of the beef industry and that it is therefore necessary to establish a standard of substantial importance in the longer term. The tribunal adopted a standard of essential character that takes into account only “the longer-term perspective of a reasonable purchaser.”  The court found that a MAC clause protected the purchaser from unknown events and not from events he knew. In particular, it pointed out that, although some of the MAC clauses relate to “declines in the economy as a whole or in the industrial sector concerned”, they were not in this case.  One of the factors considered by the Tribunal in its decision was that the purchaser did not state in its public statements of termination of the sales contract that a MAC had occurred.
The IBP court`s decision was upheld in three other cases in the United States.  Capitol Justice emphasizes the importance of considering the issue of predictability in the decision to invoke a MAC clause. With respect to COVID-19, this means examining what the loan documents, document negotiations and reasonable business expectations indicate, if so, which party has taken the risk of significant and unpredictable changes in the economic climate. As a result of the COVID 19 pandemic, our firm has received a number of requests for “force majeure” and “significant negative changes” contractual clauses. Some of my colleagues have already written about the “force majeure” clauses (article available here). As a general rule, a substantial adverse amendment clause (“MAC”) allows one of the parties in a loan agreement or other contract to fail to meet its obligations or to declare the other party late when a change in circumstances undermines the value of the agreement.