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The financial impacts of COVID-19 are manifesting across the global economy. While many are considering the devastating implications, the impact on business is very difficult to predict given the constantly changing nature of the pandemic and the legal, regulatory and economic protections being introduced by government and industry to mitigate the consequences.

In these extraordinary times, it has never been more important for organisations to diligently review their contractual obligations and the available protections if they risk non-performance. For this reason, the concept of force majeure has been widely considered in this context in recent weeks.

What is ‘force majeure’?

Force majeure is a creature of contract. There is no doctrine of force majeure provided for under Irish law.

A typical force majeure clause in a commercial contract suspends a party’s obligations to perform under the contract for the duration of a certain extraordinary event. Typically, however, finance documents will not include a force majeure provision.

Facility agreements and force majeure

In light of this unprecedented global event, lenders and borrowers should be reviewing their financing documents to clarify:

  • The protections available to them, and

  • The vulnerabilities to which they are exposed

Because the concept has no basis in common law, unless a force majeure clause has been specifically built into a facility agreement, it cannot be relied on as a relief to the contractual obligations entered into by the parties. Force majeure provisions are not incorporated in the Loan Market Association (LMA) precedent facility agreement and generally speaking, they do not form part of corporate and leverage finance facility agreements. Therefore, as a relief, force majeure should not be a significant consideration in the majority of loan agreements.

Force majeure interplay

Even though force majeure may not feature directly in facility agreements, it is important to carry out a review across all associated finance documents and related contracts. For example, certain supply agreements and construction contracts can include a force majeure clause. They can also include a clause dealing with, or the suspension of, performance by any contracting counterparty under other contracts which, in turn, could constitute an event of default under the facility agreement.

As always, the terms of any contractual obligations need to be reviewed on a case by case basis.

COVID-19 and MAC

A Material Adverse Change (MAC) clause is a standard feature of LMA facility agreements. The provision is generally a repeating representation made on the first day of each interest period during the term of the loan. A breach of this representation can result in a Material Adverse Effect (MAE) event of default, allowing lenders to demand repayment and enforce security. Within the MAC clause, the borrower typically represents that there has been no material adverse change in its assets, business or financial condition since the date of its financial statements. The clause also regularly provides that the lender has no obligation to lend and that it may demand early repayment if the borrower suffers a MAC.

So will lenders invoke it?

The general consensus is that while COVID-19 may well constitute a valid MAC, lenders will be reluctant to invoke the clause to trigger an event of default.

In spite of its routine inclusion, the MAC provision is rarely relied on and there is scant case law demonstrating its successful invocation. The UK case Grupo Hotelero Urvasco SA v Carey Value Added SL & Anor [2013] is the most commonly quoted, but it provides limited guidance and was restricted to consideration of ‘financial condition’, only.

As a result, relying on a MAC clause is notoriously difficult and relatively unproven. If a lender is found to have wrongfully called a MAC, it will face not only reputational damage but may also risk having to pay damages for loss to the defaulted counterparty.

If considering your options, it is useful to be aware of the following non-exhaustive guidelines:

  • MAC provisions will be subject to rigorous scrutiny by way of contractual construction and interpretation

  • The adverse change must substantially affect the borrower’s ability to perform the transaction in question

  • The change cannot be temporary or transitory

  • The claim cannot be founded on circumstances which were in existence at the date the agreement was entered into


Now is the time for parties to financing arrangements to consider the potential impact of these clauses in the context of COVID-19. We advise that you review your documentation with care and be mindful that standard contractual reliefs are not necessarily available in the context of loan documentation and may be incompatible with overriding regulatory measures during the crisis.

The Central Bank of Ireland has set out that it expects all regulated firms, including banks, retail credit and credit servicing firms take a consumer-focused approach and to act in their customers’ best interests.

Let prudence prevail. In the absence of a more conclusive event of default, it is crucial that lenders and borrowers communicate to assess the implications for financing arrangements and to consider if amendments, waivers, temporary forbearances and restructurings are a more feasible way to mitigate the immediate impacts of COVID-19.

For expert advice on the continuing impact of the COVID-19 crisis on your business operations, contact a member of our Financial Services team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.

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