Resolving Disputes When Banks Refuse to Disburse Loans as Agreed

When a party signs a credit agreement with a bank but the bank refuses to disburse the loan as agreed, the borrower often falls into a passive state, incurring opportunity losses and unexpected costs. In such cases, businesses or individuals must understand their rights, legal procedures, and dispute resolution strategies to protect their interests effectively.

1. When Can a Bank Be Considered as "Refusing to Disburse"?

First, it is necessary to determine whether the bank has actually breached the contract. There are some legitimate reasons for a bank to withhold disbursement (based on agreement or binding conditions), such as:

• The loan agreement includes conditions precedent (such as collateral, credit evaluation, or supplemental documentation) which the borrower has failed to fulfill.

• The bank identifies high-risk signals from the customer (e.g., bad credit reports or significant changes in financial condition) and relies on "disbursement reservation" clauses in the agreement.

• Legal regulations or the bank's internal policies trigger the right to delay disbursement (e.g., conditions tied to market fluctuations or internal risk management frameworks).

However, if the bank has no clear legal basis for refusing disbursement, such behavior may constitute a breach of the credit agreement—giving rise to claims for compensation or legal action.

Common disputes over disbursement include: unreasonable delays, requests for irrelevant documents, attaching vague additional conditions, or altering requirements post-signature.

2. Steps to Handle Disputes When Banks Refuse to Disburse

2.1. Carefully Review the Contract – Identify Breach Grounds

• Read all clauses on disbursement terms, conditions, timeframes, and requirements thoroughly.

• Determine whether the bank breached its obligations (e.g., not disbursing within the agreed time, failing to provide a reason, or not issuing a written notice).

• Review the justifications provided by the bank to determine whether they are in violation of the agreement or law.

• Compare written communications, emails, official letters, and notices exchanged between the parties as evidence of unreasonable refusal.

2.2. Submit a Written Request for Disbursement

Before pursuing legal options, consider sending a formal notice to the bank:

• Issue a written request demanding that the bank perform the disbursement according to the contract, clearly stating the deadline and your grounds for claiming a breach.

• If the bank remains unresponsive or evasive, retain delivery records and proof of receipt—these are critical if the case escalates to court or arbitration.

2.3. Negotiation and Mediation

As a general rule in civil and credit contract disputes, parties should first attempt negotiation or mediation.

• Assign a representative (preferably a lawyer) to negotiate with the bank, suggesting solutions such as phased disbursement or additional documentation if objectively necessary.

• If successful, record the new agreement in writing to avoid future disputes.

However, if the bank is uncooperative, you have the right to escalate the matter via litigation or arbitration.

2.4. Litigation or Arbitration – Taking Stronger Legal Action

2.4.1. Filing a Lawsuit in Court

• Determine the court’s jurisdiction: If the contract is civil in nature, file in the People's Court according to territorial jurisdiction (where the bank’s branch or headquarters is located). For commercial matters, follow the procedures applicable to business disputes.

• Check the statute of limitations: The limitation period for civil contract disputes is three years from the date you knew or should have known your rights were violated (including interest claims). For commercial credit agreements, it may be two years.

• Prepare the legal dossier: the credit agreement, written disbursement request, delivery records, bank confirmations, email communications, and any incurred cost receipts.

• During trial, request the court to compel the bank to disburse funds or compensate damages for delayed disbursement, including lost interest and other legitimate expenses.

2.4.2. Arbitration

If the contract includes a commercial arbitration clause (mutual agreement to resolve disputes through arbitration), you may opt for arbitration:

• Arbitral awards are enforceable and have the same legal effect as court judgments.

• However, if the dispute involves disbursement obligations, the arbitrator's authority may be limited regarding enforcement or asset seizure—you must verify the scope of authority carefully.

• If both court and arbitration procedures are initiated simultaneously, there could be jurisdictional conflicts—one forum may suspend or decline to hear the case due to parallel proceedings.

2.5. Requesting Provisional Emergency Measures

If the delay in disbursement causes significant damage or there's a risk of losing your rights while waiting for litigation/arbitration, you may request the court to apply provisional emergency measures (e.g., compel temporary disbursement, freeze related assets or funds).

• Note: Courts may deny such requests if the legal basis is unclear.

• If the arbitral tribunal requests emergency relief, they can petition the court to issue a supportive order—any court denial may be challenged.

3. Practical Risks and Key Considerations

• Dispute subject identification: If the bank assigns the credit agreement to a third party, it’s vital to identify who has the legal right to sue—the assignor must prove the debt function was legally transferred.

• Collateral valuation: If the agreement is secured by collateral, the bank may invoke the right to dispose of such assets—leading to side disputes about authority, valuation, and ownership.

• Regulatory inconsistency: Various laws (Civil Code, Law on Credit Institutions, guiding decrees) still contain conflicting provisions on interest, fees, and damage calculations.

• Delayed proceedings: Many credit-related lawsuits are prolonged due to complexity in evidence gathering, procedural issues, or confusion between civil and commercial contractual nature.

• Lack of documentation: Without properly archived letters, emails, or proof of submission, your claims may be dismissed due to insufficient supporting evidence.

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