Covid19 -

‘MAC-ovid-19’ – Material Adverse Change in Finance Documents in the age of Covid-19

Perhaps unsurprisingly, we at ERM are currently assisting several clients (both lenders and borrowers) to navigate material adverse change (MAC) provisions in this time of uncertainty.

A MAC clause is included in the vast majority of Israeli financing documents. As in other global financing documents, and broadly speaking, such provisions set a measure for when circumstances have changed drastically in respect of one party, so that the party will be deemed to have breached the agreement. Most commonly, the provision is applied to representations and warranties (e.g. ‘there is no litigation against the borrower that would result in a material adverse change to the borrower’s business’) or in events of default (giving lenders a catch-all provision that allows for the consequences of default to apply where circumstances have changed drastically).

Enforcing MAC clauses in Israel

The Israeli courts are generally willing to recognise the triggering of MAC clauses, especially in cases where the lenders were able to show that serious and longer-term doubts had arisen as to a borrower’s ability to repay its debt.

It should be noted however that apart from the usual considerations of the scope of the MAC clause, even a ‘subjective’ MAC clause (at the Lenders’ sole discretion) may be subject to the scrutiny of the Israeli court since any right under Israeli law is subject to the good faith principle. Moreover, as the principle of good faith is cogent under Israeli law, even an English law governed loan agreement brought before an Israeli court for enforcement, could be made subject to the good faith principle in certain circumstances, thus potentially limiting the Lenders’ discretion.

MAC vs Force Majeure

Whereas MAC clauses deal with foreseeable, yet undesirable, circumstances relating to a party, these clauses should be distinguished from issues relating to force majeure or frustration, which relate to unforeseen circumstances – for more on that, see our prior update here.

Is the COVID-19 pandemic a MAC

For many businesses in most industries, there is a strong chance that the COVID-19 crisis – being so unexpected, wide-ranging and deeply consequential – may well trigger MAC provisions. As always, the devil will be in the detail of the relevant contract. Assuming that the circumstances that would trigger the MAC cannot be argued to have frustrated the contract more generally (and thus provide ‘force majeure’ protection) – which is likely in view of Israeli courts’ outlook on frustration as set out in our previous note linked above – what can you do?

  • Consider the language of your agreement: which MAC provisions exist? Has the COVID-19 pandemic materially and adversely affected the borrower’s business? Could the lender reasonably assess the borrower’s business to have been materially and adversely affected? Would it be doing so in good faith?


  • Assess the consequences of a MAC: are defaults triggered? Are penalties and remedies already negotiated? May consequential effects (such as cross defaults) result?


  • Choose your next steps: Can a waiver be sought? Will a default be called? Might security be enforced?

If you are considering relying on MAC clauses in your contracts, or are at risk of having MAC clauses enforced against you, do not hesitate to contact us for advice on how best to handle any concerns.

Amnon Epstein   Jeremy Seeff



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