Dutch bank duty of care
Category: InsightsDuty of Care of Banks in the Netherlands
Banks play an important role in Dutch corporate and financing practice. Companies, founders, investors and management teams often depend on banks for acquisition financing, working capital facilities, payment services, investment products and restructuring support.
Under Dutch law, banks may owe a duty of care to their customers and, in certain circumstances, also to third parties. This duty of care is relevant where a bank advises on financial products, provides financing, terminates banking services, enforces security rights or takes decisions that materially affect a company’s financial position.
General and special duty of care
Dutch law distinguishes between the general duty of care and the special duty of care of banks.
The general duty of care is connected to the bank’s role as a professional financial services provider. Banks are expected to act carefully and to take the interests of their customers into account when providing financial services.
The special duty of care goes further in specific circumstances. It may require a bank to warn customers against particular risks, assess whether financial products are suitable, or take into account the customer’s knowledge, experience, financial position and risk appetite.
The exact scope of the duty depends on the circumstances. Relevant factors include the type of client, the complexity of the product, the risks involved, the information provided by the bank and the financial sophistication of the customer.
Relevance for companies and investors
The banking duty of care is not only relevant for consumers. It can also be relevant for companies, investors and shareholders in corporate and financing situations.
Examples include:
- acquisition financing;
- refinancing or restructuring discussions;
- termination of credit facilities;
- enforcement of security rights;
- margin calls or investment losses;
- complex financial products;
- payment services and account closures;
- financing arrangements connected to M&A or growth transactions.
For companies involved in acquisitions or investment rounds, banking arrangements can be critical. A change in financing position may affect deal certainty, liquidity, covenants, closing conditions or the ability to continue operations.
For related transaction issues, see M&A Lawyer in the Netherlands and Private Equity Lawyer in the Netherlands.
Special duty of care
The special duty of care for banks applies in situations in which banks must protect consumers and businesses against the risks of financial products or investments. The special duty of care applies:
- in the pre-contractual phase,
- in the contractual phase and
- after termination of the service.
Moreover, the special duty of care extends not only to customers, but also to third parties. The scope and interpretation of the special duty of care depends on the circumstances of the case. Relevant circumstances are the complexity of and the risks associated with the relevant financial product, as well as the knowledge, experience and financial position of the customer.
When can a bank be liable?
A bank may be liable if it breaches its duty of care and the customer suffers damage as a result. This may occur where the bank failed to warn properly, provided unsuitable advice, acted inconsistently with its contractual obligations or took unreasonable enforcement action.
However, liability is not automatic. The claimant must show that the bank breached a relevant standard of care, that damage was suffered and that there is a causal link between the breach and the damage.
In commercial matters, the court will also consider the professionalism of the customer. A sophisticated company or investor may be expected to understand more risks than an inexperienced customer.
Termination and enforcement
Disputes with banks often arise when a bank terminates a credit facility, demands repayment, refuses continued services or enforces security rights.
Banks are not required to continue every banking relationship indefinitely. However, they must act carefully, especially where termination or enforcement has serious consequences for the customer’s business. The bank’s contractual rights, the customer’s payment history, risk profile, regulatory obligations and proportionality of the measure may all be relevant.
This can be particularly important in distressed M&A, shareholder disputes, restructuring situations or where a company needs banking support to complete a transaction.
Practical takeaway
The Dutch banking duty of care can be relevant in financing, investment and corporate disputes. It may affect the position of companies, investors, shareholders and management teams dealing with banks in high-stakes situations.
For M&A, PE and VC transactions, banking risks should be identified early. Financing conditions, security rights, covenant breaches, account access and termination rights can materially affect transaction execution and post-closing stability.
About Dirk de Waard
Dirk de Waard is a Dutch corporate lawyer focusing on M&A, private equity, venture capital, governance and corporate disputes. He advises founders, investors, management teams and international businesses on Dutch transactions, financing structures and shareholder-related disputes.
Questions about banking disputes, acquisition financing or financing risks in Dutch transactions? Send an email to dirk.dewaard@viottalaw.com.
