Covid-19: Is Responding To The Pandemic "In The Ordinary Course Of Business"?

• Published date: 05 June 2021
• Subject Matter: Corporate/Commercial Law, Coronavirus (COVID-19), Corporate and Company Law, Operational Impacts and Strategy
• Law Firm: Simkins
• Author: Ms Giao Pacey

In the recent decision in AB Stable VIII LLC v. Maps Hotels and Resorts One LLC¹ by the Delaware Court of Chancery, that court considered a buyer's right to terminate a proposed share purchase following the impact of the COVID-19 outbreak.

Background:

The sale and purchase agreement (SPA) exchanged by the parties included the following conditions, which were required to be met before the buyer would be obliged to complete the purchase:

• The following representation must remain accurate between exchange and completion: That there had not been any changes events or developments that have had or would reasonably be expected to have a Material Adverse Effect (MAE Condition).

• The following seller covenant must have been complied with between exchange and completion: That the business of the target company and its subsidiaries would be conducted only in the ordinary course of business, consistent with past practice in all material respects (Ordinary Course Covenant).

Decision:

The court held that the MAE Condition had not been breached as the pandemic fell outside of the SPA's definition of a Material Adverse Effect, which excluded effects resulting from "natural disasters and calamities." However, it found that the target group's response to the outbreak constituted a breach of the Ordinary Course Covenant as extensive...