“If you owe your bank a hundred pounds, you have a problem; but if you owe a million, it is the bank that has a problem” John Maynard Keynes

When a borrower gets into financial difficulties, a problematic situation may arise for the lender bank  whereby it has to take certain measures to mitigate the risk for credit losses due to the expected inability of the borrower to continue repaying his loan installments. In these instances the Bank/ the lender may refuse to grant the borrower additional financing or try to influence the borrowers methods of his cash flow management.

Furthermore, the bank may impact on the borrower’s business through the use of excessive collection measures which may limit the ability of corporate borrowers from granting their clients payment facilities .

In certain scenarios, measures employed by banks while attempting to recuperate their own funds, may culminate to the borrower’s bankruptcy. 

A policy which eventually led to a total loss of the bank’s asset, a loss of employment and an exit of possibly a profitable business from the economic cycle.

 The liability of a bank towards the borrower in the event that a borrower goes bankrupt, there are situations in which the banks were considered liable and responsible.

Two scenarios are considered: 1- the bank has made a financing promise which it has subsequently withdrawn due to a change in market conditions,

2- the bank has refused to grant additional credit to a borrower in crisis, despite the fact that the company is reliant on new credit to be able to continue its business.

In order to assess and compare these situations, the update cites case law from the United States, where lawsuits seeking damages against banks have often been successful:

Deutsche Bank, Wells Fargo, Merrill Lynch, Citibank….. and the list keeps growing.

Posted by: Mohamed Raffa LLM, FCIArb, ICCM

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