Do banks have the right to publish names of companies and directors for defaulting on loans?

This article has been necessitated by the public conversation surrounding a publication purporting to show that some companies with the Honourable Member of Parliament for Effutu and minority leader in the 9^th parliament named as director, have defaulted on loans secured from a bank in Ghana. I make no assertion of whether the said publication is indeed true, however I intend to address some legal issues that arise from such practice which is a reality in Ghana.

Banks in Ghana have usually taken to the dailies to publish the names of loan defaulters. In the said publication, the names of the companies, directors and the amount owed were published, calling on them to settle their indebtedness to the bank. The practice is known as name and shame, probably a last ditch effort to get the therein named customers to pay up.

However, does this practice have legal consequences on the bank? Does the bank have a right at all to publish such information? In this article, I address these teeming questions.

Relevant areas of law

There are two major areas of law that apply. Company law and Banker Customer relationships, particularly the principle of separate legal entity and duty of confidentiality in company and banking law respectively.

When a company is formed, it becomes a person; an artificial person with rights, privileges and responsibilities. It can enter into contracts in its own name, sue and be sued in its own capacity. Essentially, the company becomes its own person and separated from the natural persons of its directors, members and officers. This brings us to the principle of separate legal entity.

The separate legal entity principle in Company law is to the effect that, once a company is formed, it attains a legal and separate personality distinct from that of its directors and members and there’s an imaginative veil of incorporation actuating this separation. This principle was established in the locus classicus case of Salomon v A Salomon and Co Ltd [1897] AC 22. This veil of incorporation is not impregnable but can only be lifted under exceptional circumstances as established in the case of Prest v Petrodel Resources Ltd & Others [2013] UKSC 34.

In effect, the directors of a company are not personally liable for an act entered into by a company although same was executed by the directors on its behalf. In the same vein if a loan is contracted by a duly formed company, the directors are not personally liable for defaulting but the company. This was the ruling in the Supreme Court of Ghana case of Morkor v Kuma (NO 1) [1999-2000] I GLR 721 - 740. Defaulting on a loan is not one of the exceptional circumstances that warrant the lifting of the veil, and moreover the lifting of the veil is the preserve of the courts.

Therefore, it is legally wrong for a bank to name directors of a company in a name and shame endeavor when in law, the company is the customer, not its directors.

A case for breach of duty of confidentiality

The banker customer relationship is governed by many statutory and common law rules. These rules, among other things imposes a duty on the bank not to disclose confidential customer information unless under certain circumstances. The duty of confidentiality was established in the case of Tournier v National Provincial Union Bank of England (1924)1 KB 461 and embodied in Ghanaian domestic law under section 146 of the Banks and Specialised Deposit-Taking Institutions Act (Act 930). Banks may disclose confidential information where:

They’re compelled by law to do so – Robertson v Canadian Imperial Bank of Commerce (1994)1 WLR 1493
It is in the interest of the public to disclose – Price Water House v BCCI Holdings (Luxembourg) SA [1991]
The customer consents to the disclosure. - Section 146(4)(d) of Act 930, see also Turner v Royal Bank of Scotland [1999] All ER 664
Where it is in the interest of the bank to disclose. - Section 146(4)(e) and (f) of Act 930.

From the foregoing, the bank could only argue that the disclosure of the customer information is in its interest. However, a closer look at section 146(4)(e) and (f) reveals a different conclusion. The relevant sections are reproduced below guides such disclosures.

146. The duty of confidentiality imposed under this section shall not apply where:

(e) Civil proceedings have been instituted involving the bank or specialized deposit-taking institution and the customer or the account of the customer;

(f) The information is required by an officer in the employment of the same bank or specialized deposit-taking institution in die country or an auditor or legal representative of the bank or specialised deposit-taking institution who requires and is entitled to know the information in the course of professional duties.

From the statutory provision supra, it is evident that the law in defining “interest of the bank”, limits it to situations where disclosure is necessary in a civil litigation between the bank and the customer and where the disclosure is necessary for internal operations of the bank. The bank, therefore, cannot claim that disclosing customers who have defaulted on loans is in its best interest. Such disclosure is outside the limits of the law and constitutes a breach of the duty of confidentiality imposed on banks.

Conclusion

To conclude, this article posits that it is wrong for a bank to publish the names of directors of a company that has defaulted on a loan. The ordinary reasonable person in a Madina trotro unexposed to the law might erroneously conclude that those directors owe the bank when in fact and in law, it is the company that owes the bank. As to whether the bank has any right to “name and shame” its customer, the company, in the dailies or any other public medium, it has been established that the bank is duty-bound to keep such confidential information of the customer private.

By:
Joseph Naah-Yerreh
LLB candidate and Blogger
(https://Instagram.com/dadajoelive |

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