When a bank cuts off financing for a project without proper justification, the business on the receiving end is often left wondering what it can actually do about it. Malaysian courts have dealt with this situation many times, and a consistent set of principles has developed around what happens next and how a business can protect itself.

The starting point is that once a bank withdraws its facilities, it becomes extremely difficult for a business to obtain replacement financing anywhere else. Malaysian courts have described this as virtually impossible, since other lenders tend to treat a sudden withdrawal by an existing bank as a warning sign, regardless of whether the withdrawal was fair. This means the loss a business suffers is rarely just the immediate shortfall in funds. It can extend to the entire failure of the project, since the bank's action itself removes the business's ability to keep going.

Faced with this situation, a business is not powerless. The first thing courts look at is whether the business tried to keep the project alive after the termination. This can include negotiating a restructuring, offering additional security, or raising emergency funds to prevent the bank from seizing project assets. Courts have held that raising funds under this kind of pressure, to stop a foreclosure or protect an asset, does not mean the business had spare money all along. It shows the opposite, that the business was fighting to protect what it had built.

The second thing that matters is documentation. A business should keep a clear paper trail of every proposal, restructuring request, and supporting document sent to the bank. This matters because Malaysian courts have held that if a bank is given full details of a revised plan, including supporting numbers and projections, and the bank stays silent and raises no objection, the bank cannot later turn around and say it never agreed to that plan. A bank that stands by while a business proceeds on a certain understanding can be stopped from denying that understanding later.

The third principle is that the burden of proving actual loss sits with the business bringing the claim. It is not enough to say the bank acted wrongly. The business must show, using proper evidence, what it actually lost as a result. This means proper record keeping from the very start of a project, not just after a dispute arises, puts a business in a much stronger position if a bank later cuts off financing without good reason.

These principles were considered in the case of Bank Kerjasama Rakyat Malaysia Berhad v Kamuja Hartamas Sdn Bhd, Court of Appeal of Malaysia, Civil Appeal No. W-03(IM)(MUA)-2-01/2024.

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