Covid-19 and MAC clauses in Sweden
Both governments and businesses around the world are reeling from the increasingly bleak developments of the Covid-19 virus in Europe and North America. With people in over 110 countries affected, the World Health Organization (WHO) has officially declared the outbreak a pandemic. According to the Swedish Public Health Authority, Sweden had 1059 reported cases of infections by Covid-19 as of 16 March 2020.
The outbreak has led to significant economic uncertainty and raises issues for businesses in several different areas. One such area is whether the outbreak of the Covid-19 virus triggers a material adverse change (MAC) clause in an M&A transaction. This article will briefly address this issue from the Swedish perspective.
What is a MAC clause?
A MAC clause is commonly used in M&A transactions to provide the buyer with the right to walk away from the acquisition before closing if there is a change in circumstances that leads to a significant reduction in the value of the target. MAC clauses have become common in Sweden through the influence of English legal documents used by the Swedish legal and financial services sectors.
Could Covid-19 trigger a MAC clause?
This will largely depend on the wording of the MAC clause and this will be the first port of call for any adjudicator. In general, it is more difficult to trigger if the event giving rise to a claim under a MAC clause was known at the time the parties signed their agreement.
In Sweden, there is very little case law on MAC clauses as such disputes will generally be resolved through confidential arbitration. Given the foreign origins of the MAC clause, it is helpful to consider whether Covid-19 could trigger a MAC clause by analogy to the existing case law in other jurisdictions.
While we are not aware of any precedent of a MAC clause being invoked as a result of a pandemic, lessons can be drawn from events that caused similar disruption to the global economy. In the US for example, for an adverse event to be “material” requires a long-term perspective measured in years.
We note that prudent actors in the M&A sector are already negotiating carve-outs to their MAC clauses for epidemics and disease outbreaks in their agreements. It may yet be too soon to tell whether Covid-19 will have the long-term effects necessary to be considered “material” and trigger a MAC clause for many businesses. The analysis will largely turn on the clause and the relevant transaction.
We at Magnusson are available to provide legal advice on how your business should manage any Covid-19 related issues in all legal areas, including corporate restructuring, labour law and insurance law, reviewing commercial contracts, analysing the consequences of cancelled events and advising how to best handle procurement in emergency situations, to help ensure that your business is well placed to survive these difficult times and to thrive once Covid-19 has been contained.
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