Bank’s delay forced customer into unnecessary interest payments

Deceased customers' accounts,
John was the director and shareholder of a finance company. He and his fellow shareholder, Irma, were signatories on the company’s bank account. By a shareholder agreement, John and Irma jointly owned the shares in the company. However, the Companies Office recorded something different: it showed that Irma owned 50% of the shares by herself and John owned the other 50% by himself.
June 2021

John died suddenly and Irma sought to have herself established as sole shareholder and new director. If the shares were all jointly owned, control of the company would pass to Irma by operation of law. But if John owned shares by himself, these would be owned by his estate. Given the conflicting information about the shareholding arrangements, the bank asked Irma to provide more information about this, as well as a copy of John’s death certificate and confirmation that John’s estate had no interest in the shares.

Irma directed the bank to the shareholder agreement, which said the shares were jointly owned. She then passed a shareholder resolution appointing herself as director, and lodged documents to this effect with the Companies Office. John’s brother provided a letter confirming the estate had no interest in the shares or the company, and several weeks later the estate lawyer gave the bank John’s death certificate.

Irma asked the bank to make payments from the company’s account to meet its contractual obligations to third parties, but the bank refused. Frustrated, Irma got her lawyer involved. In response to contact from her lawyer, the bank’s legal team reviewed the shareholding information, clarified a provision with Irma’s lawyer, and arranged for the account to be unfrozen. By this time, the account had been frozen for nearly a month.

The company had defaulted on its obligations as both a borrower and a lender. It paid $45,000 in penalty interest to parties it had contracted with, and $6,000 in legal fees. Irma asked the bank to compensate the company for this amount but the bank declined.

Our investigation

We thought the bank acted correctly by freezing the account in the first instance and declining Irma’s instructions to make payments to external parties. The finance company had no succession plan in place, and it was reasonable for the bank to require Irma to provide documents supporting the legitimacy of her directorship. But in our view, the bank had sufficient documents within two weeks of John’s death. We couldn’t understand why the legal team didn’t review the shareholding arrangements at the outset. Had it done so, much lost time could have been avoided. We concluded the bank’s actions resulted in an unnecessary delay in unfreezing the account of 17 days.

We reviewed the contracts between the finance company and the third parties to confirm whether it was contractually obliged to pay the penalty interest. We confirmed this was so for two contracts, but in the third it was not. In this contract, the finance company was the lender but the contract stated only that a borrower must pay penalty interest on default. We also checked the legal fees and concluded that $2,500 of these could have been avoided if the bank had acted more promptly. Most of the legal fees related to John’s death, rather than unfreezing the account.


We arranged for the bank to pay $2,500 of Irma’s legal fees and 80 per cent of the penalty interest under two contracts ($9,500). The remaining 20 per cent of the penalty interest was born by the company, in recognition of the fact that its lack of a succession plan caused the problem in the first place.

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