Journal of Information, Law and Technology

Banks and Business Customers: The Y2K Problem

Andrew Campbell
Solicitor and Lecturer in Law
University of Wales, Aberystwyth

awc@aber.ac.uk

This is a refereed article published on: 30 June 1999

Citation: Campbell A, 'Banks and Business Customers: The Y2K Problem', 1999 (2) The Journal of Information, Law and Technology (JILT). <http://www.law.warwick.ac.uk/jilt/99-2/campbell.html>

Abstract
This article examines the legal powers available to lenders and considers the possible action which may be taken by banks against business customers which have failed to take adequate and appropriate action to ensure Y2K compliance. Business customers are presently being asked to satisfy their banks that their businesses are, or will be, fully compliant. The banks may insist on a particular method of showing Y2K compliance with one possibility being to use the British Standards Institution Kitemark - the 'Y2K Conformity Standards'.

It is also possible that banks may decide to go for pre-emptive strikes and call in overdrafts and refuse to lend further to companies which have failed to demonstrate Y2K compliance. This may be the approach which will be taken but are banks legally entitled to cut off funds like this and to call in overdrafts? These important questions are examined in detailed and consideration is given to the use of floating charges as a form of security and the power which this gives to lenders. The ways in which the banks may use this power will be examined in the light of the publication by the British Bankers Association of Banks and Businesses: Working Together – A Statement of Principles (1997).

Keywords: banks, business customers, borrowers, floating charges, overdrafts, insolvency, British Bankers Association.

1. Introduction
The Year 2000 issue (hereafter referred to as Y2K) has been the subject of considerable debate of late. Although the century is drawing to a close it seems likely that many businesses have not yet taken action to ensure that their computer systems will function normally after the end of 1999. Operational problems may develop prior to the millennium and it is important for businesses to prepare as far in advance as possible. There have been many suggestions that no one should use a lift, fly in an aeroplane or agree to undergo surgery from New Year's Eve 1999 until it can be shown that anything which depends on computer technology is in satisfactory working order. 

The purpose of this article is not to consider whether chaos will actually ensue from computer failure or whether the Y2K problem turns out to have been a false alarm. This article examines the legal powers available to lenders and considers the possible action which may be taken by banks against business customers which are perceived to have failed to take adequate and appropriate action to ensure Y2K compliance. Business customers are presently being asked to satisfy their banks that their businesses are, or will be, fully compliant. Banks must seek to protect their own interests and this they will do by refusing to grant further loan funds to business customers which have not satisfied the bank that they are Y2K compliant. It is also likely that in many cases the banks will seek to demand immediate repayment of overdrafts and term loans where a borrower is perceived to be in danger of insolvency as a result of failure to address the issue of compliance. If, as has already been suggested in numerous surveys, small to medium sizes businesses have not yet started to address this problem there is the potential for an increase in corporate insolvencies. Interestingly the threat by the banks may have a very positive effect on small businesses in the UK by encouraging companies to take a look at themselves and to ensure that they have efficient and up-to-date computer systems in place. This aspect is addressed later in the article.

2. The Problems faced by Banks
According to Sir Eddie George, the Governor of the Bank of England '....the financial system - especially in a centre as large and diverse as London - is highly interdependent and the failure of one quite small part can easily have substantial knock-on effects. And the failure of parts of the infrastructure could be catastrophic.' <http://www.bankofengland.co.uk/pr98024.htm>. Economic forecasts towards the end of 1998 suggest that the United Kingdom economy is slowing down and may be moving into recession during 1999. The economic well being of banks depends to a large extent on the health of the overall economy and during a recession there will inevitably be a rise in the number of business failures and, as a result, a rise in the amount of bad debts owed to banks. Where a substantial number of business borrowers fail the lending bank can find itself in serious financial difficulties. Though the failure of a bank is relatively uncommon in the United Kingdom it is certainly not unknown. There have been several bank failures in recent years of which two, BCCI and Barings Bank, have been well publicised but there have also been other, smaller banks which have failed in the 1990s. Banks must take care when lending to ensure that loans are well spread and not centred around one particular type of borrower. By operating prudential lending policies which ensure an adequate capital base, a well managed bank should be able to avoid serious problems even in a time of recession. Bankers have to take care to constantly monitor the health of their loan portfolios to ensure that action can be taken where business borrowers are under performing. The combination of the possibility of an economic downturn and the potential Y2K problem provides a situation of great concern for the banking industry. 

The banks in the UK have already spent millions of pounds ensuring that computer systems are fully Y2K compliant and, although nothing can be absolutely certain, the banking industry is of the opinion that there is little likelihood of serious problems with the banks' own computer systems. The danger comes from the possibility of a wave of business failures caused by the failure of business customers to ensure that their computer systems, upon which so many are now almost totally reliant, are fully compliant. Banks must therefore take whatever action is required to ensure as far as possible that their customers are fully Y2K compliant. 

Banks are prone to systemic risk for a number of reasons and this is the point being made by Eddie George. The failure of one bank can put pressure on the banking system as banks depend on confidence for their survival and even healthy banks can, and sometimes do, fail. The maturity transformation problem which occurs as a result of normal banking business being to 'borrow short to lend long' creates a potential liquidity problem. A rumour can trigger a run on a bank and the recent banking crises in East Asia, Latin America and Russia have illustrated the fragility of banking systems. 

In the United States the threat to banks from the failure of business customers has been recognised by the Federal bank regulatory agencies and an Interagency Statement was published in 1997 which requires certain action to be taken by banks in the United States. This statement sets out the various ways in which the supervisory agencies are approaching the problem and one of the requirements in the Interagency Statement is that banks consider the efforts being made by business customers to ensure that they avoid serious disruptions to the business as a result of Y2K related problems. The Statement requires lending officers to consider whether the Y2K compliance efforts of business customers are adequate to ensure that there will be no significant disruptions to the business operations of the customer. The U.K. banking regulator has adopted a different approach and, unlike their U.S. counterparts, the British banks are not subject to any specific requirement to assess business borrowers for Y2K compliance. However, as will be seen below the British banks have been completely aware of the problem and have been taking action to avoid potential problems. 

3. Business Customers
This is a category of customer which will be particularly affected whether the Y2K problem materialises or not. The reason for this is straightforward - should a borrowing customer become insolvent the likelihood of the bank being repaid in full is slight unless adequate security has been provided to the bank. Accordingly banks will wish to take action to ensure that business borrowers are Y2K compliant and will be undertaking an examination of Y2K compliance by business borrowers. The British banks are fully aware of the importance of the problem, especially in relation to the serious difficulties which small to medium size businesses in particular will face. Different surveys suggest different levels of preparedness by small to medium sized companies but there appears to be general agreement that this is the sector which is causing the most concern. As a result of this the UK clearing banks have been providing customers with information to assist them to reach Y2K compliance. See, for example, the approach taken by Barclays Bank (this is typical of the approach taken by all the major banks) which in effect reflects the Y2K conformity standards of the British Standards Institute.

So what exactly is the problem? Business customers borrow substantial sums from banks and this type of business is, of course, a major source of income and profit for the banks. Failure to repay can be very costly ( Barclays Bank has recently had to write off £250 million non performing Russian loans) and a wave of failures could put the entire banking system under strain. In a worst case scenario a wave of business failures could lead to bank failures. Although the UK banks have prepared well for the Year 2000 in respect of the action they have taken to ensure that their own computer systems are fully compliant they are still vulnerable if business customers are not prepared.

The major banks in the UK are now including an assessment of Y2K compliance when examining risk factors for loans to business customers. Businesses which are not Y2K compliant will either be refused funding or will receive funding with stringent conditions attached. In addition it seems likely that all existing business borrowers will be asked to demonstrate Y2K compliance or risk having the lending facilities withdrawn. An example of the approach being taken by the banks is provided by the publication by Barclays Bank of a booklet entitled Year 2000 - Are You Ready? which sets out the steps which, according to the bank, customers need to take to become Y2K compliant. These are:

'1. Decide on how you will tackle this task. Either take responsibility yourself or delegate it. Get your resources organised as soon as possible as delaying will only increase costs in the long run.

2. Compile a complete and accurate inventory of all computer systems, date-dependent equipment and services used.

3. Conduct a review to establish the degree of risk that is inherent to each inventory item. Everything should be regarded as non-compliant unless proved otherwise.'(Barclays Bank 1997)

The booklet also contains the following important statement 'In due course we at Barclays, will require your assurance of Year 2000 compliance.' Follow up action will be taken by the banks to ensure that action is being taken by their business customers to achieve a state of Y2K compliance. 

4. Possible Action by Banks
Banks may decide to go for pre-emptive strikes and call in overdrafts and refuse to lend further unless companies can demonstrate Y2K compliance. The banks may insist on a particular method of showing Y2K compliance with one possibility being to use the British Standards Institution Kitemark - the 'Y2K Conformity Standards'. This may be the approach which will be taken but are banks legally entitled to cut off funds like this and to call in overdrafts? Banks are legally entitled to refuse to grant new borrowing facilities for customers unless a legally binding agreement already exists but the legal position with regard to the withdrawal of existing facilities and demand for repayment has to be considered. 

4.1 Overdrafts
Overdrafts have traditionally been thought of as relatively short-term funding but in reality many firms have continual borrowings by this method. However, what is different about an overdraft is that the amount owing will continually fluctuate, resulting in balances which vary greatly throughout any given period. The overdraft facility is, in fact, the lifeblood of many businesses. The legal position is not set out in legislation but the common law position is that an overdraft is said to be repayable on demand. In Rouse v Bradford Banking Co. (1894) Lord Herschell stated: 'It may be that an overdraft does not prevent the bank who have agreed to give it from at any time giving notice that it is no longer to continue, and that they must be paid their money. This I think at least it does; if they have agreed to give an overdraft they cannot refuse to honour cheques or drafts, within the limit of that overdraft, which have been drawn and put into circulation before any notice to the person to whom they have agreed to give the overdraft that the limit is to be withdrawn.' In Cripps & Son Ltd v Wickendon (1973) it was held that although an overdraft may be payable on demand the customer has to be given reasonable notice before the facility is withdrawn. What will amount to a reasonable period of notice? Walton J in Bank of Baroda v Panessar (1987; 348) was of the opinion that '...the debtor is not in default in making the payment demanded unless and until he has had a reasonable opportunity of implementing whatever reasonable mechanics of payment he may need to discharge the debt. Of course, this is limited to the time necessary for the mechanics of payment. It does not extend to any time to raise the money if it is not there to be paid.' The legal position is therefore that where a business borrower which has received a demand for the repayment of an overdraft informs the bank that it does not have sufficient funds to repay in full the bank can treat the customer as being in immediate default and can take action without delay to enforce its legal rights.

It may be the case that the granting of overdraft facilities is accompanied by an agreement that the overdraft is for a particular purpose or for a particular period of time. In Williams and Glyns Bank v Barnes (1980), Gibson J stated that : 'Bankers.......regard repayability on demand as a universal or normal attribute of overdrafts, but there is nothing to suggest that they regard that attribute as overriding an agreement to the contrary. If a usage to that effect existed it would not, in my judgment, be lawful or reasonable.....In truth, this custom or usage is no more than recognition of the rule of law which results from the nature of lending money; money lent is repayable without demand, or at the latest on demand, unless the lender expressly or impliedly agrees otherwise.' 

The question of an express or implied agreement to the contrary was considered in Titford Property v Cannon Street Acceptances Ltd (1975) where the loan agreement contained the following clause: 'Clause 9: All moneys due by you, whether by way of capital or interest, shall be payable on demand and you shall have the right to repay all moneys due without notice.' However, a letter from the bank to the customer contained the following paragraph: 'We have pleasure in advising you of the terms and conditions upon which we are prepared to provide an overdraft facility in the maximum sum of £248,000 for a period of 12 months to assist you in the purchase and development of the under mentioned freehold premises.' Goff J stated in the course of his judgment: 'It seems to me, where a bank allows an overdraft for a fixed time for a specific purpose - whether the time be such as the parties think is required for the achievement of the purpose, or only the most the bank will allow, that time is binding on the bank; otherwise the customer might well be led into a disastrous position, as has happened here. The customer, on the faith of the bank's promise to a loan, an overdraft for a fixed term, commits himself and then finds the overdraft cut off, so that he cannot meet his liabilities, and in addition he had insured indebtedness to the bank in respect of abortive expenditure.'

In Williams and Glyns Bank v Barnes (1980) it was held that the bank had expressly reserved the right to withdraw the overdraft facilities at any time and that there was no contradictory statement in this case upon which the customer could rely. Accordingly the bank was entitled to immediate repayment once a proper demand had been made. The legal position is, therefore, that banks will be able to demand immediate repayment of overdrafts, regardless of whether there has been a breach of any term, provided the bank has done nothing to remove the right as had been done, for example, in the Titford Properties case.

4.2 Loans
These are often referred to as 'term' loans as such loans are normally granted for a fixed period of time and the rate of interest will be fixed at the outset. This is the more usual form of funding for the purchase of specific fixed assets such as premises or equipment. A term loan will differ from an overdraft in that it will be subject to a written loan agreement which sets out the terms and conditions of the loan, usually in considerable detail. The debenture will normally contain clauses relating to the following; amount of loan, period of the loan, rate of interest, repayment dates, security granted and events which constitute default. An act, or a failure to act, which amounts to a default under the terms of the loan agreement will normally enable the creditor to demand repayment of the full amount owing and to exercise any security which the lender holds. This is a matter of contract which will have been agreed between the parties.

Will failure to comply with the bank's Y2K requirements by a specific date enable the bank to demand repayment? It is likely that newer loan documentation will ensure that there is a Y2K default clause to cover this eventuality but loans which have been in existence for a longer period of time are unlikely to contain such a clause. The legal position will be that a bank which has granted a term loan will only be able to demand repayment on the expiry of the term or on the default of the borrower.

4.3 The Floating Charge
It is normally the case that a business customer which has borrowed by way of a term loan will also have an overdraft and this, from the legal perspective, is vitally important. This is because of the existence in English law of a type of security known as the 'floating charge.' 

As has been seen the lender cannot call in a term loan before the expiry date of the loan without there being a breach of a term of the loan or, alternatively, that an event has occurred which under the terms of the loan agreement will give the bank the right to call in the loan. Banks will face legal difficulties in calling in a term loan before repayment is due on the basis of failure to take steps to deal with the Y2K problem unless this has been included as a term in the debenture. 

It is possible however that banks will be able to utilise a legal device to get round this problem. The normal structure of lending to a business will be to grant overdraft facilities to assist with the day to day running of the business and to grant a term loan (or loans) for the purchase of specific fixed assets. The bank will, in the normal course of events, seek to take security for the term loan by way of a charge over specific assets. In addition the bank will also seek additional security by way of a floating charge. The floating charge is unknown in civil law systems and, perhaps surprisingly, in the United States, but it tends to be a feature in common law jurisdictions throughout the world. To fully understand why the floating charge is so popular it is necessary to consider what such a charge actually is. In Re Yorkshire Woolcombers' Association Ltd (1903; 295) Romer LJ provided what has become the classic definition of the characteristics of the floating charge: '(a) it is a charge over a class or classes of asset; (b) the class continually alters in composition in the ordinary course of business; (c) the company is free to carry on business and in the course of so doing dispose of the assets the subject of the charge until some pre-determined event occurs which enables the chargee to intervene.' Where all three aspects are present the charge will be a floating charge, irrespective of what it is actually referred to as in the debenture. Lord Mcnaghten (1904; p. 358) considered the differences between fixed and floating charges and said:

'...a specific charge, I think, is one that without more fastens on ascertained and definite property capable of being ascertained and defined; a floating charge, on the other hand, is ambulatory and shifting in its nature, hovering over and, so to speak, floating with the property which it is intended to affect until some event occurs or some act is done which causes it to settle and fasten on the subject of the charge within its reach and grasp.'

Between them, these statements capture the very essence of the floating charge. Unusually for a form of security, it is actually designed to provide a degree of freedom to the borrower which is clearly in contrast to the position with a fixed charge. Property subject to a fixed charge cannot be dealt with by the owner (i.e. the borrower) without the permission of the charge holder, whereas property subject to a floating charge can be freely dealt with by the borrower. As Lord Mcnaghten notes, the floating charge hovers over the ever changing assets until a certain event happens which turns it into a fixed charge. It is at that time, and not before, that the borrower is no longer able to deal freely with those assets to which the floating charge attaches. The idea of the floating charge is simple and is extremely effective in practice, as it enables a bank to lend money on the security of ever changing assets, while the borrower has the freedom to continue to trade in the normal manner. The combination of a secured loan coupled with business flexibility is one which, since its inception, has been an essential ingredient in the business of banking. 

Despite the undoubted attractions of the floating charge as a form of security, lenders have traditionally preferred to take a fixed charge over assets wherever possible, and assets of a particular type, such as land and buildings, plant and machinery, goodwill and intellectual property are particularly suitable for this. However, despite the extensive benefits which are conferred upon a holder of a fixed charge, Part II of the Insolvency Act 1986 has introduced one important disadvantage. Where only a fixed charge is held the debenture holder finds itself, despite having priority over other creditors, in a disadvantageous position as it will not be possible to appoint an administrative receiver.

The floating charge therefore permits the company to continue trading and to use the charged assets in the ordinary course of business. This allows a high degree of flexibility to the borrower as there will be no need to obtain the permission of the charge holder each time that the charged assets are dealt with. However, this inevitably means that there is a risk to the lender as the value of the secured assets will be in a constant state of fluctuation. In particular, where a company is constantly trading at a loss the value of the security will be diminishing. This will require a greater degree of monitoring than with a fixed charge to ensure that the company's assets are not gradually decreasing and the bank will make regular checks to ensure that its security is adequate. 

4.4 The Emergence of the Lightweight Floating Charge
Prior to the Insolvency Act 1986 coming into force the use of a floating charge was widespread but the provisions contained in the Act have now made it almost essential that lenders, even those with fixed charges over particular assets, will ensure that the debenture securing the borrowings will contain both a fixed and a floating charge. There are two reasons for this development. First, a holder of a floating charge will have the right to appoint an administrative receiver. Secondly, the holder of the floating charge has the extremely important right to block an application to appoint an administrator. 

A bank which has provided loan funds to a company on a long term basis, for example, a loan of £250,000 for the purchase of a factory, will only lend if the company provides the bank with a debenture which gives the bank a fixed charge which ranks before all other securities the company may have provided. In such a case there would not at first appear to be any need for the bank to require any additional form of security providing that the property has been valued at a sufficiently high figure to provide an adequate safety margin if the value were to fall at some time in the future. A first charge over land and buildings has always been considered the best form of security available to a lender. However, with the introduction of the administration order provisions (Insolvency Act 1986 Part II) the holder of a fixed charge will not necessarily be able to exercise its security if an administrator has been appointed by the court. Nor will the holder of a fixed charge be entitled to receive notice of an application to the court for the appointment of an administrator and may well find that the company is in administration. Why will this put the fixed charge holder at a disadvantage? The answer is to be found by looking at the powers vested in the administrator by the Act (sections 14 – 15). The administrator has the power to either dispose of the charged property (section 15) or to prevent the disposal for a period of time. The administrator will have to make an application to the court where the property that is to be disposed of is subject to a fixed charge (section 15(2)) and the court must be satisfied that the disposal would be likely to promote the purpose or one or more of the purposes specified in the administration order. The holder of the fixed charge is protected in that the net proceeds of the disposal are to be applied towards discharging the sums secured by the fixed charge (section 15(5)). The main problem for the lender is that control is lost over the timing and conduct of the sale and thus it may be argued that the lender may suffer prejudice and possible inconvenience. Where it is not an administrator but an administrative receiver who has been appointed the same scenario will apply with identical protection being afforded to the holder of the fixed charge (section 43(3)).

Lenders of substantial sums secured by a fixed charge will not, in the normal course of business, wish to lose control of the ability to deal with the charged assets and will wish to take action to prevent this happening. In such a situation it is likely that the lender will decide that the best course of action would be to hold a floating charge in addition to the fixed charge. This will provide twofold protection in that first of all the lender, if the floating charge is valid, will be able to appoint an administrative receiver and also to veto the appointment of an administrator by the court. As a holder of a floating charge, the lender will require to be notified of any application for the appointment of an administrator (section 9(2)(a)) and will have five clear days in which to appoint an administrative receiver and thereby prevent the appointment of the administrator (section 9(3)), unless the holder of the floating charge consents to the appointment (section 9(3)(a)).

This development in the law led to the emergence of what has become known as the 'lightweight' floating charge. Such a charge will exist solely for the purpose of ensuring that the chargee will have to be given notice of any application for an administration order, thereby allowing the chargee the opportunity to block the appointment. Additionally, it provides the chargee with protection against an administrative receiver appointed by another lender taking control of the assets of the company.

The banking sector quickly decided that the use of 'lightweight' floating charges was necessary to ensure that lenders were not prejudiced by the introduction of the administration order regime or by the new powers given to administrative receivers. Indeed the banks were more than satisfied with the new powers given to administrative receivers but at the same time wished to ensure that these would benefit the banks by allowing a high level of control and flexibility.

Initially there was some doubt as to the effectiveness of 'lightweight' floating charges and the question of their legality had to be considered in Re Croftbell Ltd (1990). In this case, a debenture holder sought to block the appointment of an administrator claiming that joint administrative receivers had already been appointed (Insolvency Act 1986 s9(3)). The company opposed the debenture holder's claim on two grounds. First, that the debenture did not in fact create a floating charge despite being described as such, and secondly, that if it did create a floating charge, it should still be held to be invalid, as it was merely a device to get round and avoid Part II of the Act. On the first argument, Vinelott J held that the dictum of Romer LJ (Re Yorkshire Woolcombers' Association Ltd 1903) did not define a floating charge for all purposes, but indicated the material features which distinguish a floating charge from a fixed charge (1903: p. 784). He was satisfied that there was no ground on which the court could conclude that a charge which according to the term created a floating charge over the present and any future property of the company had no operation at all. With regard to the second argument, it was submitted that the intention of the legislature should not be circumvented by the device of backing a floating charge on to a fixed charge over the company's sole or principal asset. 

Vinelott J stated 'I do not think that the answer to the question whether the holder of a debenture, which on its face creates a floating charge, has power to appoint an administrative receiver can turn on the intentions of the company when the debenture was executed or the knowledge by the debenture holder of these intentions. The intention of the company might change and the company might have substantial assets outside the scope of the fixed charge when the power to appoint a receiver is exercised. I should also add that in the instant case there is no evidence as to the debenture holder's knowledge of the company's intentions, if indeed the company had formed any fixed intentions as to the role to be played by the company when the transaction was entered into.'

Accordingly, Vinelott J gave judicial blessing to the lightweight floating charge and this decision has helped to ensure that the administration order provisions in Part II of the Act are not widely used. The 'lightweight' floating charge, giving as it does the power to veto applications for an administration order, has become a common feature in the banking community and it is now the practice of lenders to insist on taking a floating charge even where the lender is adequately secured by way of a fixed charge. The banking community is undoubtedly hostile towards administration orders generally and their practice in relation to lightweight floating charges reflects this.

Banking practice in the 1990s is therefore to have both fixed and floating charges in relation to business borrowers. This means that if a bank becomes concerned about the failure of a business borrower to have addressed the Y2K issue in time the bank will be able to take the following action. It can issue a demand for immediate repayment of the overdraft and this, as has already been seen, will be effective providing the overdraft had not been granted for a fixed term which has not yet expired. As reasonable notice must be given the bank is likely to take action without delay and should the demand not be complied with within a reasonable time the bank will be able to appoint an administrative receiver. The appointment of an administrative receiver will be an event which gives the right to demand immediate repayment of the term loan provided the debenture contains a clause which covers this; it would be very unusual for a debenture not to contain such a clause. The bank will therefore now have effective control of the company through the administrative receiver. It can instruct the administrative receiver to collect and realise sufficient assets to discharge the borrower's indebtedness to the bank or alternatively, it can instruct the administrative receiver to undertake an appraisal of the business in an attempt to see whether Y2K compliance is possible and whether the business is viable.

The Cork Committee, in its detailed report into insolvency law, noted that in some cases a receiver has been able to restore a financially troubled company to good health and the Committee was of the opinion that the power to appoint a receiver of the whole of the property of a company had been of outstanding benefit to both the general public and society as a whole.

It is to be hoped that banks, which feel the need to exercise control in this way, will attempt, through the appointment of an administrative receiver, to take the necessary action to ensure the survival of the business where this is a possible outcome. The British banks have recently provided a strong indication that they are committed to promoting a corporate rescue culture. In 1997 the British Bankers Association published a document entitled Banks and Businesses: Working Together - A Statement of Principles (1997) which sets out the ways in which banks will work with small and medium sized businesses to 'get the relationship right from the outset and to help if the business gets into difficulties.' The Principles came into effect in July 1997 and the member banks have agreed to be bound by them. It is worth setting them out in full.

The 12 Principles are:

'1.	We will confirm the terms of any facility (borrowing, guarantees, bonds etc.) in writing.
2.	We will remind you to seek independent advice.
3.	We will co-operate with your advisers to explain the nature of any facility and to clarify anything during the relationship.
4.	We will agree with you at the outset of the facility what sort of monitoring information you should supply and how frequently. If circumstances change, we will agree any new monitoring information with you.
5.	We will alert you in writing when we have concerns about your business and/or our relationship with you.
6.	If you are unable to solve the underlying problems, we may ask for additional financial information and/or seek an independent review of our business.
7.	If we ask for an independent review, we will explain our requirements to you and discuss the terms of reference, who should conduct the review and the nature of costs you are likely to incur.
8.	Where we have requested an independent review of your business to help you solve the underlying problems, we will seek to discuss the information provided with you (and, should you request, your advisers) before taking any action.
9.	We will add our support to a rescue proposition which we believe will succeed.
10.	If you act in good faith; keep us informed about developments; keep to your agreements with us; heed what your own and any independent advisers say; and are prepared to make the changes needed early enough to preserve the underlying business, we will not normally seek the immediate appointment of a receiver or start other recovery proceedings.
11.	We have procedures to help resolve complaints and disagreements. We will act fairly and reasonably and seek to resolve problems quickly, dealing in plain language.
12.	You can appeal to the Ombudsman if you feel we have not kept to these procedures.'

These Principles demonstrate that the banks are keen to ensure effective communications with business customers and where customers agree to co-operate fully they should be entitled to support from their banks. The action described above should only become necessary where there has been a breakdown in communications and such action should not be aimed primarily at withdrawing funds and taking enforcement action against the business borrower but instead should be an opportunity to attempt to save a business which might otherwise experience financial difficulties as a result of the Y2K problem.

The major banks have shared their concerns with business customers and have provided assistance in raising awareness of the problems faced by these businesses if they fail to address the problems which lie ahead. 

5. Conclusion
The Y2K problem has provided an opportunity for banks to assist their customers to avoid the potential consequences of computer equipment failure by encouraging them to ensure full compliance prior to the end of 1999. It is clearly in the interest of both the banks and their business customers that Y2K compliance is achieved but the available evidence suggests that many customers, especially small to medium sized businesses, have not yet turned their attention to the Y2K problem. Accordingly, banks must take action to protect their own interests and in this paper I have attempted to show how this can be achieved. It is unlikely that there will by a wave of administrative receivership appointments and this is certainly not what is being suggested here. Pressure from the banks will undoubtedly ensure that many companies which would otherwise not have taken appropriate action will in fact be prepared for the millennium. Ironically it would appear to be the case that the Y2K problem, whether or not any computer mayhem actually develops, has provided a potential environment for better and more productive business. Those business customers who fully upgrade their computer systems, whether under duress from their bank or by their own volition, will not only be better prepared for the future but should be able to expect a high level of support from their banks. Where business customers have not demonstrated bona fide attempts to achieve full compliance they will find that the banks are able to take swift and dramatic action against the company.

The opportunity currently exists for banks and small businesses to work together to ensure not only that the effects of the Y2K problem are minimal but also to demonstrate that the commitment by the banks to work with customers is shown to be real. It is to be hoped that the banks comply with the spirit of the statement of principles referred to above and that any action taken will reflect these principles. It is also to be hoped that should it be necessary to appoint an administrative receiver this will not be done on the automatic assumption that the receiver is simply there to act as a debt collector for the bank and to leave what remains to a liquidator. It would clearly seem to be the case that there is an opportunity here for receivers to actually perform the type of rescue function referred to by the Cork Committee.

Cases
Bank of Baroda v Panessar [1987] Ch 335.
Cripps & Son Ltd v Wickendon [1973] 2 All ER 606.
Re Croftbell Ltd [1990] BCC 781.
Re Yorkshire Woolcombers' Association Ltd [1903] 2 Ch 284.
Rouse v Bradford Banking Co. [1894] AC 586.
Sheppard & Cooper v TSB [1996] 2 All ER 654.
Titford Property v Cannon Street Acceptances Ltd Unreported May 22nd 1975 Cited in Encyclopaedia of Banking Law Vol. 1, Para C183.
Williams and Glyns Bank v Barnes [1980] Com LR 205.

References
Barclays Bank plc (1997) ‘Year 2000 – Are you ready?’ London

British Bankers' Association, London (1997). Banks and Businesses: Working Together - A Statement of Principles

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