The banks’ imposition of business support measures on small to medium-sized business have gone awry, a banking lawyer has warned.
Writing in this week’s NLJ, barrister Aidan Briggs of Ely Place Chambers, highlights issues identified by two recent banking reports. For example, perverse incentives to push viable businesses into solvency may be at work due to increased margins and fees, while lenders engineer “distress” in businesses by restricting credit or revaluing assets and then accelerate the decline by imposing dramatic changes to lending terms.
Briggs offers advice to clients of banks on how to resist such treatment, for example, some contracts expressly provide that the bank exercise certain powers only in a “commercially reasonable manner”. Secured lenders also owe an equitable duty of good faith, and may not act in a way that unfairly prejudices the mortgagor, for example, by holding a “firesale” valuation.