Key Points:
Material adverse effect clauses are prevalent in
Australian loan documentation. However, lenders should be mindful
that, given some recent UK authorities, such clauses are likely to
be interpreted narrowly and not every material adverse effect
clause, however drafted, will suffice to protect their
interests.
Most loan agreements in Australia will have multiple clauses
referring to the occurrence of a "material adverse
effect" or "material adverse change" (the
MAE clauses), with most lenders viewing them as an
essential and powerful protection of their interests from any
unexpected deterioration in the borrower's condition.
However, there is very limited Australian legal authority on how
"material adverse effect" clauses are to be applied in
the lending context.
