15 November 2018

Press Release: Borrowers can’t play “Royal Commission” card in negotiating with banks

Borrowers seeking to restructure or renegotiate their business loans can’t assume bad publicity emerging from the Royal Commission into Financial Services will in itself get them better terms and outcomes, according to Bartier Perry partner Norman Donato.

“The Royal Commission hearings are ongoing but already we’re seeing business leaders trying to pressure banks publicly over the terms of loans they don’t like,” said Mr Donato.

“The Royal Commission can expect to have its name used in vain by borrowers who will try to play the card of “poor bank culture” or “bad behaviour” in the months and years ahead as lending markets tightened and renegotiating loans become more fraught.”

Mr Donato said there was a difference though between hard-nosed negotiation on commercial terms and poor or unethical practice.

“The Commission has been very clear in carving out bad bank behaviour from borrowers being poorly advised when entering into a lending agreement or renegotiations. Businesses can’t assume if things go sour that banks or other lenders will take a non-commercial approach simply because they’re threatened with, ‘bad PR.’

Mr Donato said the poor lending practices exposed by the Royal Commission has seen banks drastically tighten lending practices, consequently lending and restructuring loans is becoming more difficult. This trend is set to continue for the foreseeable future as the slow down in the property market continues and/or is exacerbated by the changes in practices by the major banks.

That meant banks will be increasingly wary of entering into restructuring agreements, as should borrowers, where borrowers do not have specialist advice.

“Managing that requires advisers that understand the lender’s perspective and pressures and can address those needs and balance them with the needs of their clients to get the deal over the line,” said Mr Donato.

“As lending tightens having specialist advice will become critical in structuring any loan transaction that is not a vanilla transaction or restructuring and refinancing loans, rather than asking a legal allrounder to cast their eye over the agreement.”