Australia: The Arrium Series (#5) – Interpretation and application of Material Adverse Change clauses

In brief

The Arrium Series

Welcome to issue #5 of our Arrium Series, where senior members of the Baker McKenzie team involved in the successful defence of proceedings against the former CFO, former Treasurer and other former employees of the Arrium Group, consider key issues arising in those and related insolvent trading proceedings and from the judgment handed down on 17 August 2021.1

A summary of the relevant background to the Arrium proceedings, some key terms and the key issues to be considered in this Arrium Series can be found in issue #1 here, issue #2 (which considers solvency in the context of large debts due in the relatively distant future) can be found here, issue #3 (which considers when and how duties of care may be owed to lenders) can be found here and issue #4 (when may company officers and employees be personally responsible for representations) can be found here.


Today's issue - interpretation and application of Material Adverse Change clauses

Key issues in the Lender Proceedings included whether the (so-called) "MAE Representation" made to lenders was true. 

As explained in issue #1, this turned upon the interpretation of relevant syndicated and bilateral facility agreements (Facility Agreements) and, particularly, whether changes in the Arrium Group's financial position since 31 December 2012 (in one instance) and, otherwise, since the date of Arrium's last Accounts (31 December 2015), had had a “material adverse effect” on the ability of an Arrium Group member to perform its obligations under the Facility Agreement or other "transaction document" ("Arrium MAE Clause"). 

The Arrium MAE Clause was a (complex) version of a "material adverse change" (or MAC) clause, which are commonly found in loan and security documentation, acquisition agreements and other contracts. 

The proper interpretation and application of MAC clauses is critical for debtors, creditors, company directors, finance teams, lawyers and insolvency practitioners alike.

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1 Anchorage Capital Master Offshore Ltd v Sparkes (No 3); Bank of Communications Co Ltd v Sparkes (No 2) [2021] NSWSC 1025


Related alerts from the Arrium Series

Australia: The Arrium proceedings - something important for everyone

Australia: The Arrium Series (#2) - Determining solvency where current debts are being paid but large debts are due in the relatively distant future

Australia: The Arrium Series (#3) - Do you owe a lender a duty of care?

Australia: The Arrium Series (#4) - When may company officers and employees be personally responsible for representations?

Australia: The Arrium Series (#6) - Lender reliance and loss causation

Australia: The Arrium Series (#7) - Novel assessments of loss for negligence, misleading conduct and insolvent trading

Australia: The Arrium Series (#8) - Secondary debt trading - Assignments of debts and rights of recovery

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