London Calling (with a little help from Abu Dhabi): The meaning of MAC

Mingguo v Sadeghnia (Rev1) [2024] ADGMCFI 0005 (22 May 2024)

Recently the Global Market Court of First Instance in Abu Dhabi had cause to look at a material adverse change ('MAC') clause – a contractual mechanism that may allow a buyer to withdraw from a transaction before completion.

Factual background

The dispute arose between Mr. Mingguo ('the Seller') and Mr. Sadeghnia ('the Buyer') in relation to a Share Purchase Agreement in which the Seller was to sell and transfer 80% of the shares in his company, WCS, to the Buyer.

Legal issues

Despite the successful transfer of the shares, the Buyer withheld the second instalment payment, asserting inadequate control over the company as he had not been granted access to WCS' bank accounts and email servers. The Buyer contended that this constituted a MAC, justifying the non-payment. The key legal issue was whether a MAC event had occurred.

Decision

The Court decided that, for there to be a MAC, the event(s) that occurred must:

1. have a significant detrimental effect on the business, assets, or profits of the entity to be acquired;
2. last over a longer period of time; and
3. affect the company's future prospects.

This is a high threshold which was not met in this case.

Essential message

Whilst the definition of a MAC lacks precision, it is evident that it has a high threshold. Consequently, even if a contract incorporates a MAC clause, a buyer can only invoke it to withdraw from a transaction in limited circumstances.

Brian and Maria

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