By Greg Smith, Partner and Jeremy Mackenzie, Partner

On 15 October, Justice Black of the NSW Supreme Court handed down judgment In the matter of Mayne Pharma Group Limited [2025] NSWSC 1204. The case involved several issues (the judgment is 188 pages long), but this memo focuses on only one – the treatment of the material adverse change or “MAC” provisions.

On 20 Febuary 2025, Cosette Pharmaceuticals, Inc. (Cosette) and Mayne Pharma Group Limited (Mayne Pharma) entered into a contract for the acquisition of Mayne Pharma. The contract included a number of conditions to closing, particularly there being no MAC. If there were a MAC, the terms of the contract allowed Cosette to terminate it. On 17 May 2025, Cosette purported to do just that. Mayne Pharma commenced proceedings seeking a declaration that the termination was invalid.

The MAC defined term in the contract incorporated a number of definitions. For our purposes, the key parts of the MAC were:

1. There needed to be a specific “event, occurrence, change, circumstance or matter” (“events/matters”), or a number of these in combination, which Cosette could point to as causing the MAC.
2. Those events/matters needed to have, or be reasonably expected to have, the effect of reducing EBITDA, normalised in a particular way, by a certain amount (A$10.76 million).
3. There was a list of events/matters which were to be excluded, including events/matters which had been disclosed to Cosette or arising from general economic conditions.

It is worth emphasising that this was not a case about what the words “material adverse change” (in a so-called “qualitative” MAC) mean, as has been considered in cases in other jurisdictions.^[1] In such cases, the Court needs to determine first, which metric(s) could evidence a MAC; second, what change would be sufficient; and third, whether such a change had occurred. In this case, Cosette and Mayne Pharma had written into the contract the only relevant metric (EBITDA, as above) and the change required (A$10.76 million) (i.e. there was a “quantitative” MAC).

The Court found that Cosette failed to establish that there had been a MAC. Some of the key difficulties were:

• Cosette terminated the contract based on 4 events/matters, but ultimately did not rely on 2 of them in proceedings.
• While it was able to establish events/matters which might have caused the quantitative change required, it was unable to isolate the effect of those matters (including from general economic conditions). Although Cosette could show what EBITDA had been, and what EBITDA had been forecast to be, it failed to prove that any given forecast should be used as a baseline nor that the difference could be attributed to the events/matters relied upon.
• Cosette’s expert accountant originally did not apply the exchange rate required under the contract and did not provide sufficient evidence to justify the inclusion of a particular adjustment. It was common ground between the accounting experts on both sides that, once these two matters were taken into account, the quantitative threshold was not met.
• One of the events/matters pleaded was a (downward) change in forecasts made by Mayne Pharma. The Court found that “a change in [Mayne Pharma]’s forecast did not have any diminishing effect on [Mayne Pharma]’s EBITDA for the purposes of the definition of [MAC]” (original emphasis). To paraphrase this: a forecast is a forecast, not a fact.
• Information about a decline in sales and EBITDA had been disclosed to Cosette.

The decision highlights some of the practical issues to be considered when drafting quantitative MAC clauses (e.g. can a baseline for quantitative metrics be fixed?), though in practice these may prove difficult to secure (this would in effect require standing behind a forecast, which is not common practice today).

Australia still awaits a seminal case on interpreting a qualitative MAC.

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[1] E.g. in Delaware, Akorn Inc v Fresenius Kabi AG, 2018 WL 4719347, CA No 2018-0300-JTL (Del Ch 2018); in England, BM Brazil 1 Fundo De Investimento Em Participacoes Multistrategia & Ors v Sibanye BM Brazil (Pty) Ltd & Anor [2024] EWHC 2566 (Comm). Both of these cases are referred to in the judgment the subject of this memo.