National Westminster Bank Plc · DRN-5946555

The complaint A limited company, which I’ll refer to as P, complains that National Westminster Bank Plc has unfairly closed its current account and declared its bounce back loan in default. P is represented by its owner and director, Miss C. What happened P opened a business current account with NatWest with a £500 overdraft facility in 2016. P successfully applied for a £50,000 bounce back loan (BBL) in May 2020. P’s overdraft was renewed annually until November 2023, when the bank decided not to renew. In January 2024, P’s accounts were transferred to NatWest’s specialised business management department. In May 2024, the bank tried to speak to Miss C. They also sent text messages and a letter asking her to contact them. Miss C didn’t respond. On 16 June 2024, NatWest sent letters formally demanding full repayment of P’s overdraft, which stood at £580 (including accrued interest and charges) at the time of their letter. The bank also formally demanded repayment in full of the BBL, which had a remaining balance of £30,360, the same day. Over the next three days, P paid in £1,500 in total, bringing its account back into credit. On 1 July 2024, it paid in another £3,500. On 4 July 2024, the bank closed P’s current account, which had a small credit balance, and transferred the BBL to their Recoveries department. P complained but NatWest didn’t uphold the complaint, as they felt they had followed their procedures correctly. Miss C disagreed and asked for an ombudsman’s decision. She said P’s overdraft renewal had been agreed, so the transfer to recoveries was a clear error and that the bank had made more communication errors. I issued a provisional decision on 28 October 2025, in which I provisionally upheld the complaint and directed the bank to reinstate the BBL. I said:

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I will start by considering the overdraft. Miss C says that the bank had in fact agreed to renew P’s overdraft. I haven’t seen any evidence of this and the bank’s internal notes indicate that this was not the case. However, what is clear is that after the overdraft limit expired, the bank allowed P to continue to go overdrawn, even if on an unauthorised basis. I say this because they could have returned direct debits unpaid in order to keep the account in credit, but they did not do so. I’ve looked carefully at the activity through P’s account. It was an active account with a relatively high turnover. Funds were paid in regularly and a number of direct debits went out. The account went overdrawn for a few days roughly once a month in the early part of 2024, although it was in credit most of the time. The statements I have been sent do not show any items being returned unpaid or any letters being sent about the use of an unarranged overdraft. I acknowledge that the bank made several attempts to contact Miss C in May 2024 and it is unfortunate that she chose not to respond. But I don’t think any of the bank’s communications made it clear what NatWest wanted to talk about. For example, the only letter I’ve seen was from 31 May 2024, headed Action Required and went on to say “You need to contact us to discuss your account(s)”. No reason was given and I don’t consider that it was self-evident from the position of P’s accounts. Given the very severe consequences of the bank’s subsequent actions, I am minded to think they should have warned Miss C clearly that, unless P maintained its current account strictly in credit at all times, the bank would close P’s account and put its BBL into default. The lending that has taken place here is not regulated – by the Financial Conduct Authority or any other body. So none of the protections or regulations that apply to consumer lending are relevant here. There are, however, some standards that I consider relevant, the Standards of Lending Practice for Business Customers, published by the Lending Standards Board. NatWest withdrew from these standards earlier this year, but I am required to take best practice into account in reaching my decisions and I consider the standards to be an important proxy for best practice in business lending. I therefore think it's fair to take them into account in P’s case. The Standards contain a section on the treatment of customers in financial difficulty. Amongst other things, this says: “If a firm is aware that a customer is, or suspects that they are, in financial difficulty but is able to uphold their borrowing commitments to the Firm, the customer should be given the opportunity to take action to turnaround the business." I think this is relevant here. On 2 February 2024, Miss C had a long conversation with the bank, in which she mentioned that P was experiencing some financial difficulty due to increased running costs and borrowing rates. She told the bank that she was re-mortgaging to improve her cashflow. This evidence shows clearly that the bank knew at that point that P was under some pressure, but was still very much a going concern with a strategy to improve matters. The bank may argue that the transfer to Recoveries didn’t occur until July 2024, so they had given P plenty of time to turn around the business. But I don’t think they had told Miss C what action they required her to take. On the 2 February call, the bank had mentioned overdrafts and the possibility of a transfer to Recoveries, for both P and another business. But as far as I can see, P wasn’t overdrawn on that date. On the call, NatWest’s representative told Miss C very clearly that repaying any overdrafts would avoid a transfer to Recoveries.

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The first clear communication Miss C received regarding P’s current account was, in my view, the formal demand, which said “We hereby formally demand immediate repayment of the following indebtedness.” It went on to say: “The account will be held on a reducing basis only and all standing orders and direct debits will be cancelled. Should we not receive satisfactory proposals for repayment of the borrowing within 8 days from the date of this letter, the account/s will be placed in the hands of the Bank's Debt Recovery Department”. This letter was therefore a clear request to repay the overdraft straight away. In my view, P complied with this request. Miss C did not get in touch with repayment proposals, but given that instead, she had actually repaid the debt fully within three days, I think her lack of contact was reasonable. I note that the bank did not in fact hold the account on a reducing basis only or cancel P’s direct debits after the date of the formal demand, despite NatWest’s clear statement that they would do so. This indicates that the bank still considered they had some flexibility with its actions after the formal demands. I’m minded to think that if they could choose not to cancel direct debits, having said they were going to do so, they could have chosen not to close the account and transfer it and the BBL to Recoveries. I think the final sentence extracted above (beginning “Should we not receive…” ) can only be interpreted as meaning that the accounts would be transferred to Recoveries only if no satisfactory proposals were received. In fact, the debt was repaid – surely the most satisfactory response of all. My conclusion is that the transfer of P’s accounts to Recoveries should not have taken place. This brings me to the question of the BBL. Miss C correctly points out that P wasn’t in breach of its BBL agreement at the time the formal demand was made. This is because P took out a capital repayment holiday in February 2024. This was something P was entitled to do under the BBL agreement. It was backdated to incorporate the January loan instalment, so the BBL was therefore not in arrears. Unlike P’s overdraft, the BBL was not repayable on demand. The bank were only entitled to require repayment if P breached the terms of the BBL agreement, thereby triggering what is referred to as “an event of default”. Events of default specified in the agreement included “the customer, or any subsidiary of the customer, defaults under any liability to the bank”. I cannot see that P was in breach of any other term. So I presume that NatWest issued the BBL formal demand because they considered P’s current account to be in default. I do not dispute that the conduct of P’s current account was unsatisfactory. But there are many actions the bank could have taken in that situation, that in my view would have been more proportionate. They could, for example, have written to Miss C explaining that the account must not go overdrawn in future or they would put it into default and then cross-default the BBL as well. They could also have returned items unpaid to keep the account in credit. I think all these actions would have been reasonable.

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Instead, the bank issued simultaneous formal demands on the overdraft and the BBL. They then ignored the fact that P had repaid the overdraft within the eight days their letter specified and transferred everything to Recoveries anyway. I don’t think this action was proportionate or in line with best practice and I don’t think it was fair and reasonable in the circumstances here. Miss C did not respond. NatWest responded to say: • The formal demand was issued correctly on the 14th June as the BBL was in arrears • A re-bank notice was issued on the current account as this was in credit • They accepted that the accounts were transferred to Recoveries early, as the right of set off and current account closure were completed before the re-bank notice expired. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. Having done so, I haven’t been persuaded to change my provisional findings. I still consider that NatWest did not act fairly or proportionately in closing P’s account or putting the BBL into default. I don’t agree with NatWest’s comment that the formal demand was issued correctly because the BBL was in arrears. I accept that P had missed its January 2024 BBL repayment. But it had then taken out a Pay As You Grow (“PAYG”) holiday on 9 February, which had rolled up P’s arrears. The supplemental agreement said “the calculations include the cost of spreading your missed repayment(s) and any accrued interest over the remaining life of your Bounce Back Loan”. Following Miss C signing this supplemental agreement on behalf of P, no repayments were due until August 2024. I consider this means that P was not in arrears when the formal demand was issued in June 2024, because the PAYG arrangement was still in place. I also don’t agree that a re-bank notice was issued on the current account as it was in credit. The bank has not shown me any evidence of a re-bank notice. Rather, they have sent me a formal demand for the current account issued on the same day as the bounce back loan formal demand. As I said in my provisional decision, this formal demand requested satisfactory proposals for the repayment of the current account borrowing within eight days. And P had actually repaid its current account borrowing and was in credit again within three days. I note that the bank now acknowledges that they transferred the accounts to Recoveries early. I don’t think they should have transferred them to Recoveries at all. The formal demand on the current account had said that the transfer to Recoveries would only occur if no satisfactory proposals to repay were received. In fact, the current account debt was repaid, so no repayment proposals were required or relevant. As I’ve said, the BBL was in my view not in arrears. I cannot see that P had triggered any of the possible events of default under the BBL loan agreement, unless the bank considered that the overdraft on the current account constituted a default of another liability due to the bank. My provisional conclusion was therefore that NatWest issued the BBL formal demand because they considered P’s current account to be in default.

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If NatWest cross-defaulted the BBL on the basis of the small temporary current account overdraft, I don’t think this was fair, proportionate or in line with best practice. And I think in any case, they should have ceased their recovery actions when the overdraft was cleared three days later, within the eight day deadline given. Alternatively, NatWest’s response to my provisional decision suggests the bank may not have cross-defaulted the BBL, but instead may have thought the BBL was still one month in arrears. In the light of the PAYG agreement, I don’t think this was correct. Whichever NatWest’s reasoning was, I think P ended up with the unfair outcome of a transfer to Recoveries and the associated inconvenience of an account closure and defaults on its credit file. So I am directing the bank to take the actions below to correct this. Putting Things Right In the absence of any new evidence or arguments from Miss C, I haven’t changed my provisional view on how to put things right. As I said in my provisional decision, I don’t think there is much point in requiring NatWest to reopen P’s business account – because banks can choose to whom they wish to provide banking services and NatWest could immediately give P notice to close it again. However, NatWest should put P’s BBL back in the position it would have been in if they had not declared an event of default and transferred it to Recoveries. In other words, P should be able to recommence paying the BBL back by monthly instalments and have access to any remaining Pay As You Grow options. If this requires a loan servicing account to be opened in order to make the repayments, this should be arranged. As I previously noted, some time has now elapsed during which no repayments have been made. P will therefore need to come to an arrangement with NatWest regarding the monthly payments it has missed since the transfer to Recoveries. NatWest must also remove the defaults from P’s credit file. My final decision For the reasons set out above, I uphold this complaint and direct National Westminster Bank PLC to take the actions set out above. Under the rules of the Financial Ombudsman Service, I’m required to ask P to accept or reject my decision before 10 December 2025. Louise Bardell Ombudsman

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