You may have loans, borrowing, an overdraft or factoring arrangements in place which may contain Material Adverse Change ('MAC') representations.  Generally, this means that when you sign the original paperwork, you ‘represent’ (or promise) that there have been no material adverse changes (things going terribly wrong) in your business since the offer was made to you for the finance arrangement.

You are often deemed, by virtue of other clauses in the document, to repeat these representations each day, or each time interest is calculated, or each time you use the facility.

Material adverse change (MAC) (or material adverse effect (MAE)) is a "catch-all" concept designed to capture unpredictable and unforeseen events or circumstances which would otherwise be difficult to cater for specifically in documentation. It is used as a threshold to measure the effect of an event or circumstance.

In practice, this might mean that, in circumstances where your business is paralysed by Coronavirus:

  • Your loan may be ‘accelerated’ - eg, you might have to pay it all back immediately
  • Your loan may not be extended further
  • A personal or director's personal guarantee might kick in

The financial impact of the 2019 novel coronavirus disease (COVID-19) is likely to be significant. Lenders and borrowers will be considering the impact on their own arrangements especially where they operate in an industry or sector particularly affected by COVID-19.

Whether COVID-19 could trigger a MAC clause will depend on the drafting of the clause, the specific circumstances and the impact that this has on the borrower.