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A bank may not simply terminate your business credit: it has a duty of care and must provide good reasons as well as observe a reasonable period. Even if the credit agreement contains a termination clause, termination may be unacceptable according to standards of reasonableness and fairness. If you disagree with the termination, you can object and hold the bank liable for your damages. You can read about your rights below.
When is a bank allowed to terminate a business credit line?
The basic principle is that the bank must honor the credit agreement, even if the interest rate subsequently proves unfavorable. The bank may, however, terminate the credit if the borrower fails to adhere to the agreements, for example regarding interest and repayment. But forgetting a payment just once is not a valid reason: the bank must act carefully and reasonably.
Case law offers guidance:
- The Rabobank/Aarding ruling (2009) established indicators to assess the validity of a termination: the bank must have good reasons and observe a reasonable period;
- A ruling by the Supreme Court of 10 October 2014 shows that even a contractual termination option does not give the bank a free hand: termination is not permitted if it is unacceptable according to standards of reasonableness and fairness.
Object to the termination
If you disagree with the cancellation, you can take action. Options:
- file a notice of objection against the termination;
- hold the bank liable for your damages — searching for another bank entails additional costs, and a higher interest rate is also damage for which the bank may be responsible;
- request the bank for a proper justification;
- ask for a longer term;
- request the bank to review the decision.
Frequently Asked Questions
Can a bank simply terminate my credit?
No. The bank has a duty of care and must maintain good reasons and a reasonable period. Even with a contractual termination option, termination can be unacceptable.
Is one missed payment enough for cancellation?
Usually not. A single forgotten payment does not justify termination; the bank must act carefully and reasonably.
Can I claim compensation for wrongful termination?
Yes. If you suffer damage due to an unjustified cancellation — for example, due to higher interest or switching costs — you can hold the bank liable for this.
What if I have already found a new financier?
Even then, you can still hold the bank liable for the damage caused to you by the wrongful termination.
Business credit terminated? Have your position assessed
Are you unsure about the validity of the termination of your business credit? We will draft a notice of objection, enter into discussions with the bank, and, if necessary, initiate legal proceedings to recover your damages.
View our expertise in financial litigation or schedule a no-obligation introductory meeting.
