Will COVID-19 Qualify as a ‘Material Adverse Effect’?

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The pandemic and associated lockdown orders changed economic projections virtually overnight. As a result, organizations which were under contract at the onset of COVID-19 – e.g., to merge with or acquire another entity or acquire assets– may be reconsidering and looking for a way out. One possible recourse: material adverse effect clauses. Many MAE clauses allow a party to terminate a previously-negotiated deal when an event or occurrence has shaken the core of the contemplated transaction. This is an interesting and infrequently See more +
The pandemic and associated lockdown orders changed economic projections virtually overnight. As a result, organizations which were under contract at the onset of COVID-19 – e.g., to merge with or acquire another entity or acquire assets– may be reconsidering and looking for a way out. One possible recourse: material adverse effect clauses. Many MAE clauses allow a party to terminate a previously-negotiated deal when an event or occurrence has shaken the core of the contemplated transaction. This is an interesting and infrequently discussed area of law, which is coming into focus as result of COVID-19 and the lockdown orders issued in its wake.

In this episode of the Harris Beach podcast, Kelly Foss, a partner in the Harris Beach Business and Commercial Litigation Practice Group, explains how courts tend to interpret MAE clauses and addresses the key question – the extent to which COVID-19 and ensuing lockdown orders might qualify as a “material adverse effect.”

For additional information, you can also download a white paper on material adverse effects that Kelly and David Clar (a partner in the Harris Beach Corporate Practice Group) co-authored. Visit www.harrisbeach.com to download.

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