Banks and SMEs: A Legal Banks and SMEs: A Legal Perspective p
Work Done Work Done • For an overview of the “bank’s perspective”; see i f h “b k’ i ” Ministry of Economic Development, “Bank Lending Practices to Small and Medium Sized L di P ti t S ll d M di Si d Enterprises” (July 2003) (“the 2003 Report”). • No competition concerns; but compare Cruickshank Report (2000) and UK Competition C Commission Review (2002 & 2007). i i R i (2002 & 2007) • No regulatory concerns; Reserve Bank of New Zealand Act 1989; PPSA 1999; Credit Contracts and Consumer Finance Act 2003.
Security Security • “The value of loans made without any collateral backing is negligible for SMEs” (2003 g g g ( Report, p.30); • “Residential homes are the predominant form Residential homes are the predominant form • of security for SME loans” (2003 Report, p. 30); ) • “The level of bad debts associated with SMEs The level of bad debts associated with SMEs is very low” (2003 Report, p. 42).
Problems of Security Problems of Security • Possible avoidance of security over matrimonial home; see Barclays Bank plc v y p O’Brien (1993); • Guidelines in Royal Bank of Scotland v Etridge • Guidelines in Royal Bank of Scotland v Etridge (No 2) (2002): (a) contact wife directly; (b) information provided to solicitor; (c) doubts f l ( ) b about validity of transaction; (d) solicitor requires written confirmation.
Confusion in the New Zealand Courts Confusion in the New Zealand Courts • Hogan v Commercial Factors Ltd (2006): leaves open the question of whether Etridge applies p q g pp in New Zealand; • A missed opportunity? Rawleigh v Tait [2009] • A missed opportunity? Rawleigh v Tait [2009] NZSC 11.
Lender Liability Lender Liability • 2003 Report raises the issue of bank “relationship p managers” g (p. (p 19) ) and the duration of the banking relationship with SMEs (p 45); SMEs (p. 45); • Commercial practice v legal liability; • 2003 Report states that “the banks do not see it as their role to directly provide business it as their role to directly provide business advisory services”.
Increased Lender Liability? Increased Lender Liability? • The general rule: Williams & Glyn’s Bank Ltd v Barnes [1981] Com LR 205, per Gibson J; [ ] p • Credit Contracts and Consumer Finance Act 2003; 2003; • Consumer Guarantees Act 1993, ss 28 & 29.
Conclusion Conclusion • Regulatory and competition aspects of bank ‐ SME relationship seem fine; p • Existence of uncertainty over security arrangements and lender liability may make arrangements and lender liability may make banks more cautious when dealing with SMEs.
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