8 September 2025
When you enter into an agreement with a bank for a loan or a credit facility (hereinafter referred to as a “financing agreement”), you will often see that the General Banking Terms (Algemene Bank Voorwaarden or ABV) apply to that agreement.
These General Terms and Conditions, just like in other agreements, set out additional rules that also apply to the financing agreement. In most cases, these rules apply to the bank, but the ABV also contain provisions that impose obligations on you as the client.
In this article we will discuss two key provisions that banks are likely to invoke when your business is facing financial difficulties: Article 26 and Article 35.
This article provides: “If we request it, you must provide us with security for the payment of your debts. This article contains several rules that may be important in relation to securities.”
When entering into the financing agreement, you likely already granted the bank securities in the form of pledges and/or mortgages. A pledge applies to non-registered assets such as inventory, equipment, and receivables. A mortgage applies to registered assets, such as real estate, large vessels, and aircraft.
Article 26 ABV means that if the bank requests it, you as the client are obliged to provide immediate additional security for your debts to the bank. This additional security is on top of any security already provided and covers all current and future debts to the bank.
The bank’s intention here is to manage its credit risk. By requesting additional security, the bank aims to keep its risks under control. This article is often used in situations where a business is in financial distress, working on recovery plans, or requesting additional credit, deferred interest, or repayment holidays. Precisely in such situations, the bank wants more control over the business and its assets.
However, Article 26 ABV also makes clear that you are not required to provide more security than is reasonably necessary. So-called over-securing must be avoided. In assessing whether over-securing exists, the risk profile of the business and the bank’s existing credit risk must be taken into account.
The other side of Article 26 ABV concerns the release of (additional) security that is no longer necessary or reasonable. Although Article 26 ABV itself does not regulate release, legal commentary indicates that the bank does have a duty to release unnecessary security. The bank’s general duty of care under Article 2 ABV plays an important role in this assessment, alongside the principles of reasonableness and fairness.
To properly assess your position when the bank invokes Article 26 ABV, it is crucial to have clear insight into your legal rights and obligations. You cannot be required to provide more security than is necessary. At the same time, it is essential to identify situations where it is reasonable for the bank to release (additional) securities.
This article provides: “You may terminate the relationship. We may also do so. Termination means that the relationship ends and all ongoing agreements are settled as quickly as possible.”
Termination of a financing relationship is a serious event for your business, as well as for you personally. Over the years, case law has clarified when and under what circumstances a bank may exercise its right to terminate.
The shortcomings of the business towards the bank must qualify as grounds for termination. When formulating grounds for termination and acting upon them, the bank must take various circumstances into account. These have been established in case law.
Relevant circumstances include the duration, size, and course of the credit relationship, the extent to which creditworthiness has declined, and whether the credit risk has increased. The client’s behaviour, timely provision of information, and the extent of attributable shortcomings also matter.
In addition, the bank must consider the survival prospects of the business and the opportunities (and time needed) to obtain alternative financing. Finally, the way the bank makes its decisions, communicates with the client, and the expectations it creates are also relevant.
As described above, your input as a client is also crucial. The bank needs a complete picture of the business, not only financially but also legally. As an entrepreneur, it is your responsibility to review the bank’s actions and the conclusions it draws. Entering a termination process well informed increases your chances of reaching a constructive outcome with the bank.
It is clear that your bank cannot simply demand additional securities from you, nor can it freely terminate a financing agreement. When a bank invokes these provisions, it is important to gain a clear understanding of your rights and obligations. We are, of course, available to provide tailored legal advice in such cases.
Do you have questions about this topic or would you like personal advice? Please feel free to contact us.
