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ARTICLE · 07 JANUARY 2021

MAC/MAE Clauses In The Context Of COVID-19

A recent Ontario decision of Fairstone Financial Holdings Inc. v. Duo Bank of Canada ("Fairstone") became the first Canadian case to consider material adverse change ("MAC")...

CanadaCoronavirus (COVID-19)

A recent Ontario  decision of Fairstone Financial Holdings Inc. v. Duo Bank of Canada  ("Fairstone") became the first Canadian case to consider material adverse change ("MAC") or material adverse effect ("MAE") clauses in the context of COVID-19.  In Fairstone, Duo Bank of Canada sought to invoke the MAC/MAE clause to exit the transaction but the court did not allow it to do so.  This blog explains the reasoning of the court and takes a broad look at the law of MAC/MAE clauses within the context of COVID-19.

MAC/MAE Review

MAC/MAE is generally  defined as "the occurrence of unknown events that substantially threaten the overall earnings potential of the target in a durationally-significant manner".  MAC/MAE clauses typically serve as a closing condition to provide the purchaser a legal avenue to exit a transaction in the event that a material change with adverse effects has occurred in the interim period between signing and closing.

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