Credit cancellation by the bank (2): What to do and what not to do?

In April 2020, there was still a peak in bankruptcies, but thereafter that number fell sharply. Only 98 bankruptcies were declared in August 2021; the lowest number since December 1990.

Since the beginning of the corona crisis, the government has supported business owners in many ways. From Oct. 1, 2021, the government will stop some support measures, some schemes must be repaid, and tax debts must generally be repaid.

Banks have deferred business owners repayments and financing of about 3.1 billion euros in 2020. Bank financing has held up well during the Corona crisis. Banks expect a quick return to normal operations and are ready to finance recovery. They are also mindful of companies that will be squeezed in the coming period of winding down government support and the recovery phase.

Despite that eye for businesses in the recovery phase, there may still be an (imminent) credit cancellation because, unfortunately, the tide cannot be turned.

Part 1 of this diptych outlines when a bank may terminate a financing and under what conditions. This second part provides some practical tips on how to avoid termination or what to do if termination does occur. In short, the do's and don'ts for business owners.

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Inform the bank

The natural reaction to (financial) problems, is to prioritize the day-to-day issues and postpone the structural problems until a time when "it's more convenient. Although understandable, when facing financial problems it is wiser to inform the bank in time about the possibilities and impossibilities of paying interest and repayment. Keep talking to your bank.

If the bank is included in the situation and informed of the measures to be taken, it can guide and think along. Moreover, it has the necessary experience, which you may also benefit from.

This proactive information builds trust and understanding with your bank and can possibly even prevent cancellation.

In doing so, it is advisable that, as business owner , you know what your duties, as well as your rights, are in your relationship with the bank. For example, the bank's duty of care to its customer plays an important role in the relationship between the parties.

Bank's duty of care

Whether a bank may cancel and under what conditions depends on what is stated in the contract and in the general terms and conditions. The bank is almost always authorized to terminate. The Supreme Court in 2014 ruled that it may nevertheless be unacceptable by the standards of reasonableness and fairness for the bank to use this power of termination.

Even in the case of (impending) termination, the bank must consider the interests of business owner (duty of care) in its decision. It is therefore important that the business owner lets the bank know what interests are involved, such as maintaining employment. The duration of the banking relationship can also be influential, how agreements are fulfilled, the value of collateral (such as mortgage or pledge rights), what (reorganization) measures have been taken, whether you have only been affected by the corona crisis or whether there are other problems, and whether the bank has raised certain expectations. Make sure you always emphasize these interests to the bank and properly document them in correspondence.

Indeed, weighing all the circumstances, the court may rule that a bank should not terminate the financing or should give longer notice. In the latter case, there is more time to find another financier.

Keep your appointments as much as possible

Try as much as possible, or at least in part, to fulfill your obligations toward the bank. This refers not only to the (partial) payment of interest and redemption, but also to other agreements. After all, you must usually also provide the bank with information, ensure that a pledge subject to a mortgage right is adequately insured, periodically send figures and provide other relevant information. It prevents questions if you comply with these as well as possible and creates trust with the bank.

It can be counterproductive if you dig in your heels (although this is very understandable under the circumstances). If you show that you are doing your utmost to include the bank's interests in your considerations and go to great lengths to fulfill your agreements, this can work in your favor. A judge will also consider this behavior if the bank does terminate the credit and you oppose it in a proceeding.

Do's and don'ts

Do not wait if you see that you cannot fulfill your (financial) obligations to the bank. Inform the bank proactively and don't dig your heels in. Show that you are doing everything possible to keep your agreements. If possible, come up with a plan yourself to get the situation back on track, even if you anticipate that it will take longer. Do not forget to outline the interests of you as business owner and of your employees, suppliers and customers to the bank. Where possible, emphasize the joint interest of the bank and you.

If your bank does decide to cancel your credit, get help from a specialist who will advocate for your interests as soon as possible. This applies even if the bank is willing to refinance. We will help look at the conditions and securities if the bank, or another financier, wants to proceed with you. Read more information here.