Legal Updates

A bank must give prior notice prior to cancelling credit or reducing it and enable the customer to get prepared

February 7, 2016
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A company received bank financing for a number of years despite the fact that its balances were negative and the account was in deficit.  The company was unable to supply the bank with additional securities that the bank demanded. The bank refused to continue granting credit to the company and the company was thus sold to a third party for a low amount.  The company and its shareholder sued the bank.

The Court held that a bank does not have to grant credit to a customer and it had discretion in such area.  Nevertheless, even if the account opening documents state otherwise, reducing the credit or canceling it must be done in professional good faith, with prior notice that will enable the customer to be prepared or follow the conditions set by the bank for the continuance of the credit.  In this case cancelling the credit was reasonable and after several notices and thus the claim was dismissed.

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