The impact of fusion on your banking relationship

In recent years, "fusion" has been trending in the retail industry. Think of the baker who also sells art, the supermarket chain with a sandwich store, but also the hairdresser who sells sneakers, the restaurant at the garden center or the hardware store that now frequently competes with furniture stores.

The banking relationship

To do business, you need a banking relationship. Most business owners depend on a current account with a bank to finance their business. As the financing requirement increases, a bank will make increasingly strict demands. They may require more security; for example, you may establish a lien on your stocks or provide a guarantee (draft).

As long as the bank does not terminate the banking relationship and does not claim the credit, you can continue to use the available credit. The bank does not simply terminate a banking relationship; it has a duty of care to do so, and the bank needs a compelling reason for termination.

Can the hardware store just use the financing from the banking relationship to start a restaurant as well?
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Termination of banking relationship due to other activities

Your financing is subject to the General Banking Conditions. Article 36 of the General Banking Conditions states that the bank is entitled to call in the credit (and terminate the banking relationship) if the business owner fails to comply with the obligations in the General Banking Conditions. Those same banking conditions stipulate that a business owner must actively inform the bank of changes in its business activities.

In addition, the financing agreement often describes the activities for which a credit is provided.

Conceivably, therefore, the bank may not appreciate it if you have received a credit specifically for a business activity and you decide to use the credit for other activities without consultation.

Does this now mean that if the business owner wants to serve his customers a drink for a fee as well he runs the risk that the bank will simply terminate the financing?

No, it seems the soup is not being eaten so hot.

An example. In summary proceedings before the Amsterdam District Court, the central issue was the bank's termination of the banking relationship because a business owner had not been (sufficiently) informative. The termination was successfully contested.

Briefly, the bank wanted to terminate the banking relationship because the business owner that initially dealt in used car parts had changed its business to dealing in small electronics. The bank was not informed about this. According to the bank, trust in the business owner was gone because he had not adequately informed the bank about his new activities.

Duty of Care

The interim relief judge determined in this case that the loss of trust, due to the failure to inform by the business owner, should not be considered a weighty ground for the termination of the banking relationship. By terminating the relationship anyway, bank acted in violation of its duty of care and the interim relief judge ordered the bank to continue the relationship with business owner .

Thus, a bank is not automatically entitled to terminate the banking relationship when a business owner develops new or different activities. A termination will always have to be tested against the banking duty of care and the standards of reasonableness and fairness.

As long as the business owner serves pure coffee, there does not seem to be much of a problem. However, I do wonder if the business owner with a construction market uses the bank credit to engage in more (financially) risky activities such as professional trading in bitcoins, for example, can also successfully defend against a termination of the banking relationship.

There are conceivable cases where the bank is put in an awkward position by the development of new activities by business owner . Think of activities where the bank has limited insight into where funds received come from. Incidentally, this (often) has not so much to do with the hairdresser's obligation to provide information as with anti-money laundering legislation. Nevertheless, even in this case, the bank has a duty of care to observe.

The opinion therefore reads as follows:

Talk to your bank about expanding and deploying activities - before you start doing so - it may just prevent a nasty discussion.

If you are unsure about exactly what you have agreed to with your bank regarding the use of credit, collateral or other financing issues, please feel free to contact me or one of my colleagues.