The Co-Debtors replied by accusing the bank of acting inequitably and violating the loan documents and the implied covenant of good faith, pointing to the bank’s refusal to allow the Co-Debtors to prepay their loans one month before maturity because of the Debtor’s alleged default.

The bank filed foreclosure lawsuits against the other two LLCs (the “ Co-Debtors”). In particular, the value of the Debtor’s building securing the bank’s $14.35 million loan had fallen from almost $16 million to approximately $8 million from 2009 to 2017, and the vacancy rate had increased consistently from roughly 27% in 2010 to 62% in 2016. The bank invoked its MAC clause, alleging that one of the LLCs (the “ Debtor”) was in default based on negative changes in its “financial condition or results of operations…or…the value of Property”.

The loan documents provided that a default by one of the LLCs constituted a default by the others. The bank had made commercial mortgage loans to three LLCs that were owned by the same individual. Associates, which was decided in December 2021 by New Jersey’s intermediate appellate court, the bank won its case on summary judgment based in part on its MAC clause. We review those cases below.Īlso, in bankruptcy-related news, the debt limit for Subchapter V small business bankruptcy cases has changed again, and March 2022 saw a significant surge in bankruptcy filings. Surprisingly, COVID did not generate a lot of reported cases on MAC clauses, but two recent cases provide more insight into how to think about MAC clauses and when they may be invoked. So, in these pages we surveyed some of the case law on MAC clauses in the lending context and provided some principles that a lender can take away and apply to emerging situations. Two years ago, as COVID began to take its toll on the economy, our firm received inquiries about “material adverse change” (“ MAC”) contract clauses. (B) CHANGES TO THE SMALL BUSINESS BANKRUPTCY DEBT LIMIT. (A) THE “MATERIAL ADVERSE CHANGE” CLAUSE (PART II) AND

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