How to analyse whether a material adverse change provision has been triggered

By Brian Cain

Material adverse change (MAC) clauses are a common feature of financing documents. Broadly speaking, their objective is to give the lender a chance to either prevent further drawdowns under an existing but undrawn tranche of a loan or call an event of default where the loan is fully or partially drawn. Although there have been a number of cases in the US that have considered such provisions, they have not come before English courts very often. A recent case had to consider whether a lender could take advantage of a MAC provision to stop a borrower making further drawing under a real-estate development financing. The judgment contains a few surprises for those who seek to rely on MAC clauses.

GHU as borrower had entered into a loan agreement with Carey as lender in relation to the development of the old Marconi Building in Aldwych into a luxury hotel. The development suffered as a result of the financial crisis and Carey ceased lending in June 2008.

GHU claimed that it has suffered loss as a result of Carey’s failure to honour its obligations under the loan agreement to allow GHU to make further drawings. There were two limbs to Carey’s defence to that claim. First, Carey claimed that it was not obliged to continue to lend because of certain financial defaults relating to the GHU group of companies arising out of the declining real-estate market in Spain. Carey argued that such defaults allowed it to trigger a MAC clause in the loan agreement that entitled it to prevent further drawings by GHU. Second, Carey argued that there were a series of ‘development defaults’ in relation to the redevelopment of the site in London that also entitled it to prevent further drawings. It is the first limb of the defence relating to the MAC clause that is of interest for present purposes…

If you are registered and logged in to the site, click on the link below to read the rest of the Taylor Wessing briefing. If not, please register or sign in with your details below.

Sign in or Register to continue reading this article

Sign in

Register

It's quick, easy and free!

It takes just 5 minutes to register. Answer a few simple questions and once completed you’ll have instant access.

Register now

Why register to The Lawyer

 

Industry insight

In-depth, expert analysis into the stories behind the headlines from our leading team of journalists.

 

Market intelligence

Identify the major players and business opportunities within a particular region through our series of free, special reports.

 

Email newsletters

Receive your pick of The Lawyer's daily and weekly email newsletters, tailored by practice area, region and job function.

More relevant to you

To continue providing the best analysis, insight and news across the legal market we are collecting some information about who you are, what you do and where you work to improve The Lawyer and make it more relevant to you.

Briefings from Taylor Wessing

View more briefings from Taylor Wessing

Analysis from The Lawyer

  • merger deal

    Corporate crunch time: who will triumph at The Lawyer Awards 2014?

    As the equity capital markets rocketed back into favour and global M&A saw at least a partial return to form, there have been some rich pickings for The Lawyer’s Corporate Team of the Year award shortlisted firms in 2014. 

  • singapore orchid

    Singapore: Cash course

    The city-state is working hard to become a global wealth management hub, and law firms are gearing up for a prosperous new world

View more analysis from The Lawyer

Overview

5 New Street Square
London
EC4A 3TW
UK
http://www.taylorwessing.com

Turnover (£m): 241.20
No. of lawyers: 860 (UK 200)
Jurisdiction: UK
No. of offices: 4
No. of qualified lawyers: 67 (International 50)

Jobs