15 July 2025
The District Court of Limburg recently issued a judgment on the immediate termination of a credit agreement.
In this case, British guarantors of a Dutch private limited company (BV) failed to meet their obligations towards the bank. The BV itself did comply. At the time of termination, the bank had no indication that the BV would fail to meet its obligations in the future. It was also relevant that the bank had sufficient security to expect repayment in the event of insolvency. Furthermore, the immediate termination left the BV with no real opportunity to secure alternative financing (ECLI:NL:RBLIM:2024:5401).
As a result of the termination, the BV was abruptly cut off from its working capital, could no longer meet its expenses or pay creditors, and was forced to file for bankruptcy.
The bank relied on a contractual right to terminate the credit agreement. However, based on the above arguments, the BV’s insolvency trustee concluded that exercising this right was unacceptable according to the standards of reasonableness and fairness. The court agreed.
It was also relevant that the BV’s financing was independent of the financing of the two guarantors.
A favourable outcome for the trustee, but also an important one in general terms. Once again, the court rightly referred back to established case law, particularly the Supreme Court decision ING/De Keijzer Beheer (ECLI:NL:HR:2014:2929).
In that case, the Supreme Court held that the validity of a lender’s termination of a credit agreement must be assessed based on the agreement and the standard of Article 6:248(2) of the Dutch Civil Code. A termination based on a contractual right is not valid if, under the circumstances, invoking that right is unacceptable under standards of reasonableness and fairness.
The bank’s duty of care therefore plays a role in the termination of financing, while other factors from an earlier judgment (Rabobank/Aarding ECLI:NL:GHARN:2003:AF5233) also remain applicable.
In the Rabobank/Aarding judgment, the Arnhem Court of Appeal ruled that the following aspects are relevant in determining whether a bank’s termination of credit is lawful:
• the duration, exclusivity, size, complexity and course of the credit relationship
• any significant deterioration in creditworthiness and/or significant increase in credit risk, particularly whether adequate security is or remains available (assessed based on liquidation value)
• the conduct and reliability of the borrower and the extent to which the borrower informs the bank of relevant circumstances
• any attributable breach by the borrower (such as repeated or serious overdrafts)
• the likelihood of the business surviving, with or without restructuring or restart, and whether the borrower has initiated a reorganisation
• the time given to the borrower to find another bank and the severity of financial consequences if refinancing fails
• the bank’s internal decision-making process and its communication with the borrower, including whether prior warnings were given
• any expectations the bank created, for example by allowing overdrafts
• wider societal interests (including preserving employment)
Before a bank can terminate a credit facility, it must carefully weigh a wide range of factors.
If you are ever faced with the termination of financing, prepare thoroughly and assess whether the termination meets the above legal standards.
Do you have any questions about this blog? Please feel free to contact us.
