Loan Agreement Termination Clause

The absence of a compelling reason to terminate the credit contract does not mean that the credit contract could not be terminated. This simply means that the bank should be careful to meet a reasonable notice period allowing the borrower to find alternative financing. The length of such a notice may vary from a few months to 12 months or more, depending on the circumstances. On 10 October 2014, the Supreme Court of the Netherlands confirmed that a bank could avail itself of a contractual termination clause, unless it was acceptable under the standards of adequacy and fairness (eisen van redelijkheid – billijkheid)4. The nature of the borrower is critical in determining the extent of a bank`s duty of care. Is it a private consumer or a professional party? These can continue to be subdivided into parties with limited or in-depth experience in financing agreements (e.g. B, from small and medium-sized enterprises to multinational conglomerates with large and complex group financing structures). It is likely that private consumers and less demanding businesses will have a higher duty of care. However, the case law provides that a literal interpretation of the credit contract is the starting point when working parties have negotiated credit documentation and been assisted by expert (legal) consultants3. This means that the terms of complex funding agreements are generally interpreted verbatim in comprehensive and negotiated documents. This is why the parties can generally invoke the literal meaning of the terms.

Therefore, when a bank terminates a credit facility on the basis of its contractual rights, it is difficult for a borrower to argue that the bank acted inappropriately. In August 2015, the Court of Appeal of `s-Hertogenbosch ruled that the validity of a termination must be determined in particular by: (i) the reasons for the bank`s termination; (ii) if the reasons for the termination have been communicated to the borrower; (iii) the notice period applied by the bank.6 In any event, in the event of termination of a credit contract, we advise the bank and the borrower to conduct a constructive dialogue to agree on the terms of termination. Both parties will benefit from the breakdown of the relationship on good terms. Whether it is a significant reduction in the borrower`s creditworthiness and/or an increase in the bank`s credit risk; If the borrower`s behaviour and reliability (for example. B if the borrower provided relevant information to the bank); Whether or not the borrower executed under the credit agreement; If the bank`s decision prior to the termination of the credit contract, the way the bank consulted the borrower and whether the bank notified the borrower in advance of the termination; AND if the bank has raised false expectations by its own behaviour (z.B. by allowing the borrower to exceed credit limits).

Comments are closed.