Significant deterioration in financial circumstances

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Material adverse change is a normative indeterminate legal concept , which the creditors of a continuing obligation (about loan agreement , rent ) an extraordinary termination for good cause against his debtor should enable because due to the solvency of the debtor, the financial basis of the contract is omitted or future at risk becomes.

Legal basis

The German Civil Code (BGB) knows this vague legal term, especially in loan law. Here, the provision of Section 490 (1) BGB has been made even more credible-friendly than Section 610 BGB, which was omitted in 2002. On the one hand, not only the revocation of a loan promise is made possible, but rather the creditor is granted an extraordinary right to terminate existing loans in the event of a significant deterioration in the financial situation; it is enough if the situation threatens to deteriorate significantly. On the other hand, the content of the standard was also extended to include the decline in the value of collateral provided . The right of termination should give the lender the opportunity to assess the reasonableness of the credit relationship.

The law itself, however, avoids a definition of the normatively indeterminate legal term "substantial deterioration in financial circumstances". This could lead to a dispute between the contracting parties as to what is meant by the terms “material” and “financial circumstances”. When the law uses such vague legal terms, it expects to be filled in by case law and literature. The concept of a significant deterioration in financial circumstances is largely clarified in the case law on the provisions of Section 321 of the old version of the German Civil Code. In jurisprudence and literature it is now undisputed what is to be understood by a significant deterioration in financial circumstances within the meaning of § 490 BGB.

Significant deterioration

Not every reduction in assets is a “significant deterioration in assets”. The deterioration must relate to the entire financial situation of the debtor. Deteriorations in assets include both asset reductions and deterioration in the saleability of assets. In the case of private individuals, wealth is reduced if significant parts of their assets lose value or go under, or if the income situation has deteriorated to such an extent that they have to fall back on their assets. In the case of companies, the development of liquidity and equity must be taken into account; objective signs are slow or non-payment. The annual financial statements are an important instrument here.

The deterioration becomes significant when it jeopardizes the repayment claim ( Section 490 (1) BGB). The reduction in wealth must be considerable, percentages cannot be found in the literature, but at least 20% can be assumed. There is therefore only a significant deterioration if the magnitude of the assets is visibly, and not only temporarily, reduced. "Substantial" means that there is a risk of repayment. If a loan and interest can still be repaid from the - shrunk - assets, the deterioration is in any case not "significant".

However, circumstances that are not directly related to the assets also come into consideration. The rejection of a loan application at other banks can mean a significant deterioration, as can enforcement acts by third parties. In a much-cited decision, the Hamm Higher Regional Court had to judge the case of a master locksmith who, among other things, had started his own business with the help of public subsidy loans. After 1½ years, the bank canceled the loan on the grounds that the financial situation had deteriorated significantly. In contrast, the court assumed that a certain initial loss when starting a business was normal and that the development compared to a predecessor company was even positive. The simple assessment “loss equals risk to assets” is not sufficient, at least in the case of a business start-up, to view corporate losses as the cause of an important reason for termination.

Credit institutions as lenders

Institutional creditors such as credit institutions have an interest in regulating the increased credit risk expressed in a “significant deterioration in financial circumstances” and have therefore included this issue in their terms and conditions . There the indefinite legal term has been given concrete form through a non-exhaustive list of example cases.

Has deteriorated

If the enforceability of the claims of a credit institution has already occurred, including the realization of any collateral, there is an important reason that entitles the credit institution to terminate the loan . The right of the banks to terminate their credit commitment without notice arises from No. 19 Paragraph 3 Clause 2 of the General Terms and Conditions of Banks in conjunction with § 314 , § 490 BGB. According to this, the immediate termination of a business relationship requires an important reason, on the basis of which the terminating party cannot be expected to continue the business relationship, whereby the legitimate interests of the borrower must be taken into account. An important reason is a proven significant deterioration or significant risk to the financial situation of the borrower or a demonstrable significant deterioration in the value of the collateral provided for the loan. If the borrower has already stopped making payments (contractual interest or repayment payments are not or no longer on time) or have declared that they want to stop the payments, the requirements for immediate loan termination are met.

An exception to these cancellation options is for consumer and real estate loan agreements. In the case of consumer loan agreements, termination is not possible due to deterioration in financial circumstances as long as the arrears are within the permitted range. According to Section 498 (1) No. 1 BGB, the lender can only terminate the consumer loan contract for a loan that is to be repaid in partial payments if the borrower makes at least two successive partial payments in whole or in part and at least 10% a term of the consumer loan contract over three years with 5% of the nominal amount of the loan or the installment price is in default. In the case of real estate loan agreements, paragraph 1 applies with the stipulation that the borrower must be in default with at least two successive partial payments in whole or in part and at least 2.5% of the nominal amount of the loan. Section 498 (3) of the German Civil Code (BGB) was revised in this form due to the law to limit risks associated with financial investments ( Risk Limitation Act ) with effect from August 19, 2008. The aim was to prevent unlawful dismissals due to alleged default in payment. Before this regulation came into effect, the permitted arrears were often contractually regulated and were around 5% based on the regulations for consumer loan contracts.

Imminent danger

After the reform of the law of obligations in 2002, the deterioration need not have occurred first; it is enough if there is a risk of deterioration. The imminent danger of the borrower's insolvency entitles the creditor to terminate the loan without notice for an important reason. There is an imminent danger if the borrower's compliance with the payment obligations or the enforceability of the claims is jeopardized even with the realization of any collateral. This is the case, among other things, if the borrower's financial situation or the value of the collateral provided for the loan deteriorates significantly or there is a significant risk, in particular if the customer declares that he wishes to suspend payments. There is good cause to terminate a loan without notice even if the over-indebtedness has not been established. If the borrower's liquid means of payment are permanently and not only temporarily insufficient to meet the future loan liabilities, there is also an impending danger. The borrower's own receivables due are not available to him for payments of his own credit liabilities to the bank and may therefore not be taken into account in the liquidity plan . An imminent occurrence of the borrower's insolvency jeopardizes the fulfillment of his liabilities to a bank. However, the credit institutions are required to weigh up their own interests in immediate termination and the interests of the borrower in continuing the loan relationship in a verifiable manner before giving notice.

Existing collateral

The mere existence of collateral is not enough to exclude the right of termination. Sufficient collateral is available if, in the opinion of an uninvolved, knowledgeable third party, with regard to the overall circumstances, it is sufficient to cover the full credit risk and can be used without any particular difficulty. Here, too, the interpretations of the deterioration in assets are deemed to be a “significant deterioration” in the value of the collateral. If the collateral falls significantly in value, the credit institutions have a right of additional collateral in accordance with No. 22, Paragraph 1 of the AGB-Sparkassen. If the borrower does not meet this claim for additional collateral, this triggers a termination without notice in accordance with No. 26 Paragraph 2 lit. b AGB-Sparkassen (see: Obligation to make additional payments ).


The judgment of the obligee that a significant deterioration of the financial circumstances or loan collateral has occurred or that such is threatened can be verified by a court. The creditor's view must therefore be objectifiable. Responsible acting creditors are therefore bound by facts; mere unprovable fears are not enough. As in the case of the Federal Court of Justice, the courts check, even recalculate, what liquidity was available to settle loan liabilities due. In the case cited, a doctor had due fee claims against the Association of Statutory Health Insurance Physicians, which, according to custom, are not paid until 3–4 months after the end of the quarter; however, these receivables were not available as liquid funds at the relevant point in time and could therefore not be taken into account as liquidity for loan servicing. Knowledge of the suspension of payments is an important indicator of insolvency. Knowledge generally means knowledge that is believed to be certain. According to Section 130 (2) InsO , knowledge of the insolvency or the application for opening is equivalent to knowledge of circumstances that necessarily indicate the insolvency or the application for opening. The compelling conclusion from the circumstantial facts of insolvency can only be drawn if an honest thinker, who is not influenced by the thought of his own benefit, cannot ignore the knowledge that the debtor is insolvent in view of the facts known to him. In particular, the non-payment of loan interest and repayment, which are typically only not settled when due when the necessary funds are not available, indicates the borrower's insolvency.

This contractual provision can also be checked formally, as it is a general terms and conditions clause . Was not discussed individually with the client and negotiated, it is subject to judicial namely content control .

International right

In international law there is a similar provision with the “Material Adverse Change” clause (also: MAC clause). Occasionally, the term "material adverse event" (also: MAE) is used.

Loan agreements

In the case of loan agreements, the MAC clause gives the obligee the right to terminate without notice in the event that the borrower does not, in particular, make due interest and repayments on time. In addition, events or processes are also listed here as examples that are suitable for a significant ( material ) deterioration ( adverse change ) in the economic or legal situation, as reflected in a later annual financial statement of the borrower, a significant impact on the business activity, assets - or to trigger the earnings situation of the company concerned or its affiliated companies. First of all, there must be a noticeable deterioration in these events compared to the initial situation at the time the loan was granted. For the application of the clause, however, a not only insignificant deterioration must have occurred. The "Material Adverse Change" clause is an integral part of the covenants .

Company purchase

When companies purchase contracts find MAC clauses are also increasingly used. They are intended to protect the buyer from significantly disadvantageous changes in the basis of the transaction in the phase between the signing of the contract (so-called "signing") and the transfer of ownership (so-called "closing"). In contrast to the use in credit agreements, MAC clauses do not establish a right of termination in company purchase agreements, but are intended to give the buyer the right to withdraw from the contract before it has become binding. Depending on the transaction, there can be several weeks or months between signing and closing . The most common reasons for the divergence between the two deadlines are antitrust proceedings and refinancing negotiations. The MAC clauses have gained in importance from 2007 , especially after the events of September 11, 2001 and the occurrence of the so-called financial crisis . Both events caused the general economic environment to change overnight.

The legal effectiveness of MAC clauses is very controversial. Relevant judgments were made in the USA by the "The Court of Chancery of the State of Delaware". In Europe, the British “Panel on Takeovers and Mergers” was confronted with a MAC clause. Both the Delaware court and panel denied the existence of an MAE in the above cases. In part, the lack of delimitation of the MAE put forward by the plaintiff from other circumstances was taken into account, on the other hand, the (too) broad scope of the clauses was objected to.

See also


  • Buermeyer, Ines: Conditions in public takeover offers, especially material adverse change clauses, Frankfurt 2006
  • Theodor Baums , Ulrich Huber , Johanneswertebruch , Marcus Lutter : Material Adverse Change Clauses in German Company Purchase Agreements , in: Festschrift for Ulrich Huber on his seventieth birthday . Tuebingen 2006.

Individual evidence

  1. Bundestag printed paper 14/6040, p. 254
  2. cf. Palandt / Grüneberg, 66th edition, marginal no. 5 on § 321 BGB, § 490 and § 775 Paragraph 1 No. 1 BGB
  3. cf. Munich Commentary on the BGB / Berger, Rn. 4 to § 490 BGB.
  4. Munich Higher Regional Court , judgment of April 10, 2007 ( Memento of the original of November 27, 2008 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. (PDF; 16 kB), Az. 32 Wx 058/07, full text, on the promise of donation. @1@ 2Template: Webachiv / IABot /
  5. BGH NJW 1964, 99, 100
  6. Herbert Schimansky / Hermann-Josef Bunte / Hans-Jürgen Lwowsky, Banking Law Handbook, Volumes I and II , 1997, § 24 marginal no. 34
  7. Herbert Schimansky / Hermann-Josef Bunte / Hans-Jürgen Lwowsky, Banking Law Handbook, Volumes I and II , 1997, § 24 marginal no. 35.
  8. BGH NJW 1985, 2696
  9. BGH NJW 1964, p. 99
  10. BGH NJW 1964, p. 100
  11. OLG Hamm WM 1985, 1411
  12. No. 26 AGB-Sparkassen, No. 19 para. 3 sentence 2 AGB-Banken
  13. ↑ Suspension of payments, protests of bills of exchange, lack of security reinforcement, incorrect information on assets, foreclosure measures by third parties
  14. a b c BGH, judgment of March 10, 2009 , Az. XI ZR 492/07, full text.
  15. BGBl. 2008 I p. 1666
  16. so already BGH NJW-RR 1990, 110, 111
  17. a b c d BGH WM 2003, 1416
  18. RGZ 53, 244
  19. BGH WM 2003, 1416, 1417
  20. ^ BGH WM 1985, 604, 605
  21. BGHZ 133, 246, 250 on § 990 BGB
  22. BGH ZIP 2006, 1457, 1458 for wages and social security contributions of an employer
  23. Picot, Gerhard / Duggal, Raoul, Unternehmenskauf: Protection against materially disadvantageous changes in the basis of the transaction by so-called MAC clauses , Cologne, DB of December 5, 2003, issue 49, pages 2635–2642
  24. The Court of Chancery of the State of Delaware , in particular in the IBP, Inc. case against Tyson Foods, Inc. (Del. Ch. June 15, 2001) and Hexion Specialty Chemicals, Inc. against Huntsman Corp. (Del. Ch. August 12, 2008)
  25. Panel on Takeovers and Mergers in the case of WPP Group Plc versus Tempus Group Plc. ( PDF )