Malayan Plant Ltd v Moscow Narodny Bank Ltd, 1980 2 MLJ 53, Privy Council
Citation: Malayan Plant Ltd v Moscow Narodny Bank Ltd, 1980 2 MLJ 53, Privy Council
Rule of thumb: Can a organisation be loaned a large debt by a bank which the organisation can’t afford so that the bank can seize the organisation’s assets – effectively like a loan shark? As a general rule, yes, because it is virtually impossible for a business to prove that a bank should have known that they could not use the loan to build their business then repay it all back (it is different with individuals where it is easier to prove loan shark exploitation).
Judgment:
When it comes to businesses there is no limit on the debts that banks can impose on them, and no reneging on the terms of the contract, even if it seems that a bank may have made big loans to a business because they knew that there was a chance they would default on their debts, or because they would not run their business the way that the bank wanted them. In other words, the ‘cut-throat arts’ of banking are still legitimate legally and this is a case to support these practices, meaning that businesses should always be extremely careful in their dealings with banks. The facts of this case were that Malayan Plant Ltd owed Moscow Bank £8 million in debts. Malayan Plant had done a lot of business with Russian suppliers and Moscow Bank loaned them a lot of money for them to try to grow their business. Moscow Bank supposedly wanted Malayan Plant to buy more goods from Russian companies for their plant with a view to selling these on, and this caused a disagreement over the best way for the business to be operated. Moscow Bank then stated that they wanted their £8 million debt to be repaid as one lump sum within 3 weeks. Malayan Plant had assets of more than £8 million but calling in this debt like this meant that they had no option but to become insolvent and sell all of their assets to repay this debts. After this letter had been served, an insolvency order was also granted against Malayan Plant. The Court in this case by the terms of the agreement between Moscow Bank and Malayan Plant Moscow bank were quite clearly allowed to recall this debt in this quickly. The Court held that Malayan Plant had no legitimate basis for disputing the debt, and no legitimate means of paying out without being wound up. The Court further held that when banks are dealing with businesses like this they owe no duty to inform them that they may or may not be entering a good or bad deal with the bank, or running up unsustainable debts, that could lead to them being liquidated, ‘... it was expressly conceded that the company owed the bank, 8, 092, 088.96 with 14 per cent interest, and the sole ground of appeal was that it would be neither just noir equitable to allow the winding up... Reliance was sought to be placed on the fact that the relationship of bank to customer has existed between the parties for over 5 years... and that the demands... for repayments within 3 weeks... had placed the company in an impossible position... the defence plea asserted, “... the banks’ general behaviour in this matter was not that of a good and reasonable banker... in that it made it too easy for the company to become indebted...”, ... Mr Newey relied strongly on what he described as the indefensible conduct of the petitioning bank, to which reference has already been made. But no evidence of oppression or unfairness by the bank was adduced, and it has to be said that, upon the available material, it is difficult to see in what respect their conduct is open to legitimate criticism. It may well be, for all one knows, that they could extended some indulgence to the company, but they were under no obligation to do more in that way than they had already done, and it cannot be said that they were either unjust or inequitable in failing to do so. At one stage learned counsel appeared to submit that there was an implied term of their relationship that the respondent should from time to time have advised the appellants on the prudent management of their business, but he later disclaimed that anything of the sort was being suggested... At the end of the day, beyond observing to give statutory notice demanding payment within 3 weeks was to ask the impossible, no concrete criticism of the respondent’s conduct was advanced’, Lord Edmund Davies.
Warning: This is not professional legal advice. This is not professional legal education advice. Please obtain professional guidance before embarking on any legal course of action. This is just an interpretation of a Judgment by persons of legal insight & varying levels of legal specialism, experience & expertise. Please read the Judgment yourself and form your own interpretation of it with professional assistance.