Can A Lender Ever Rely On A Material Adverse Change Event Of Default?

The inclusion of material adverse change provisions is common in financial documents, including loan agreements.  It is, however, unusual for them to form a key issue in legal proceedings, and a recent High Court decision has much to say on the subject that is of interest.

A loan agreement is likely to contain a number of provisions based on material adverse change, including a representation that nothing has happened that has or will have a material adverse effect on the borrower's business, financial condition or ability to perform its obligations, and an event of default if such a material adverse change or effect occurs.  The lender's obligation to make advances is likely to be conditional on these provisions (and of course other terms of the documents) being satisfied.  These are often "catch-all" provisions designed to protect the lender against unanticipated events adversely affecting the borrower.  Equally, a material adverse effect qualification may be used