Blog: How to avoid falling foul of the lenders
Mark Orr QC offers helpful advice and eight top tips to businesses and bank customers looking to protect themselves while borrowing money.
Since the crash in the property market in 2007, claims by banks against customers to recover loans have inundated the courts here in Northern Ireland and elsewhere. Most claims have been successful regardless of the many and varied defences raised on behalf of the borrowers.
In a recent Belfast case, the Judge commented: “The standard of the Plaintiff’s (Bank’s) record keeping and dealings with the Defendant were quite frankly abysmal.” The Judge refused to award the bank any interest on what was a substantial loan and went even further, ordering the bank to meet its own legal costs. However, despite his sympathy for consumers and business owners, he still had to order repayment of the principal sum borrowed.
In this particular case, there were major issues surrounding the administration of important papers such as documents not being signed on the dates printed, the customer claimed to not be in Northern Ireland on one of said dates and differing versions of circumstances in which the documentation had actually been signed.
Unfortunately the criticism of banks and the business community more generally has not been sufficient to prevent claims being successful. Furthermore the Court of Appeal has stated that there are no grounds in law for a claim in “negligent lending”.
Sadly, this is not an isolated case and more and more are coming before the Court. A customer whose loan has been called in, may be aggrieved by the conduct of a bank and feel that there has been a breach of trust. Many feel there was an understanding between them and the bank but, in the vast majority of cases, informal discussions provide no defence to a claim for repayment. No matter how friendly you think you are with your account manager.
It must be remembered that the relationship between a bank and its customers is based on a contract, a contract that almost invariably, is prepared by the bank. My experience as a commercial barrister over the past few years leads me to offer eight top tips to business (and personal) customers of banks.
This is my check list for the canny business person wanting to avoid falling foul of the lenders.
1. Personal Guarantees: A personal guarantee should be signed only as a last resort. Take time to read it over. In particular, it should contain an upper limit of liability, so consider the terms at home - do not feel pressured to sign in the bank.
2. Take your time: Facility letters should be examined carefully. These can be lengthy documents, prepared over some time by the bank and you, the customer, also need to carefully read and understand them. Do this and return to your bank with any questions.
3. Caution! Particular care should be taken with ‘renewal facility letters’. These letters normally provide that the terms set out are deemed to have been accepted by the customer continuing to avail of the loan facilities.
4. Repayments Reminder: It must be emphasised that most loan arrangements offerfull repayment on demand by the bank. I have come across many instances of customers, servicing their loans, who received a letters calling for repayment in full. This seems very unfair but the bank are perfectly within their rights to do so.
If there is an agreement that the loan will not be called in so long as repayments are made, this should be set out clearly in writing before the loan is drawn.
5. In general, documents should not be signed on bank premises. Always take paper work away with you and examine them while free from distractions.
6. Records of phone conversations should be made and retained
7. All arrangements/representations should be reduced to writing
8. Records of all dealings with the bank should be retained.
A loan is a contract between the customer and the bank. The bank will take care to ensure that all of its contractual rights are set out in writing. The customer does well to remember the words of the Hollywood mogul who said – “a verbal contract isn’t worth the paper it’s written on”.
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