When Loans Go Wrong: Supreme Court Sides With ANZ on Abusive Conduct Claim – Corporate / Commercial Law

Currently, due to the pandemic, a number of restrictions are in place that make it impossible or undesirable for lenders to collect outstanding debts. These protections will expire in September 2020, putting additional pressure on borrowers to meet their repayment obligations. Despite the reprieve, many borrowers simply will not be able to recover financially for family emergencies. It is in this context that we discuss a defense used by borrowers seeking to cancel their obligations, being an allegation of unacceptable conduct.

This was supported by a director in Australia and New Zealand Banking Group Ltd v Giannaklis (No.2) [2020] NSWSC 148, who was the guarantor of his company, which had borrowed from ANZ Bank. The manager alleged that ANZ bank improperly granted him loans while he suffered from the strain of his wife’s death.

Main substantive facts

  • Mr. Giannaklis purchased the “ Tyrepower ” franchise business through his company Trojan King Pty Ltd in 2015.
  • ANZ believed that Mr. Giannaklis’ older brother could help him with the business and did not view his lack of business experience as a problem.
  • The resulting credit agreement contained a personal guarantee that Mr. Giannaklis had signed in favor of ANZ.
  • Mr. Giannaklis was having difficulty running the business and had applied for other loans and overdrafts from ANZ during the period of operation of the business, from October 2015 to January 2017.
  • In January 2017, the business had collapsed and liquidators were appointed to Trojan King Pty Ltd. ANZ, then applied the personal guarantee, the amount claimed was $ 796,256.68.

Legal complaint and decision

Mr. Giannaklis claimed that it was inadmissible to allow ANZ to enforce the personal guarantee. He argued that ANZ acted in a predatory manner by allowing it to borrow so much money when its business went bankrupt. He further argued that ANZ was aware of his wife’s death in February 2013 and took advantage of her distress and anxiety to continue making loans.

The Court rejected this argument. In order for ANZ to behave badly, Mr. Giannaklis had to show that ANZ knew that it was not able to manage its financial affairs and affairs, and actively took the opportunity to make new loans.

ANZ knew that Mr. Giannaklis had recently been widowed, but they were unaware of the distress and anxiety Mr. Giannaklis was suffering from. The court said that the death of Mr Giannaklis’ wife did not mean that Mr Giannaklis was now unable to look after himself or his business. ANZ did not know how Mr. Giannaklis’ mental state had been affected by the death of his wife, so the subsequent loan could not have been to take advantage of him.

In addition, information ANZ had at the time of the original loan indicated that Mr. Giannaklis could repay the amounts borrowed. ANZ conducted a thorough assessment of Mr. Giannaklis’ ability to repay the loan to support this view.

What does this mean for the execution of loan transactions?

This decision was made before the COVID-19 pandemic period, but the legal principles are applicable to any future recovery action. In the current economic climate, a lender may be faced with the possibility that they will have to initiate collection proceedings against a greater number of borrowers.

It is common for defaulting borrowers to endure difficult personal or financial circumstances, but an allegation of injustice has specific legal requirements. If a borrower or guarantor cannot demonstrate that a lender knowingly took advantage of a vulnerability, a tamper-evident claim will fail.

The balance of payments surplus in April 2021 was attributed to inflows arising mainly from proceeds of the national government’s global and samurai bond issuances, which were deposited with the BSP.

The balance of payments is the net tally of foreign currency inflows and outflows of an economy versus the rest of the world during a given period. This includes inflows, computed in dollars, for goods and services that the country sells overseas, as well as investment inflows, offset by money spent on imports and repatriation of foreign investments.

A surplus means the economy is getting more dollars than it is spending while a deficit means the opposite.

The BSP said the balance of payments surplus in April reduced the cumulative deficit for January to April 2021 to $231 million, from a deficit of $2.84 billion for the first quarter of 2021.

The current year-to-date balance of payments level is a reversal of the $1.6 billion surplus recorded in the same period in 2020.

Based on preliminary data, this cumulative deficit was partly due to the country’s merchandise trade deficit and net outflows of foreign portfolio investments.

The balance of payments position reflects an increase in the final gross international reserves level to $107.71 billion as of end-April 2021 from $104.48 billion as of end-March 2021.

The latest dollar reserve level represents a more than adequate external liquidity buffer, which can help cushion the domestic economy against external shocks. This buffer is equivalent to 12.3 months’ worth of imports of goods and payments of services and primary income. It is also about 7.4 times the country’s short-term external debt based on original maturity and 5.1 times based on residual maturity.

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