Banking royal commission: NAB admits no lawful backing for seizure

NAB concedes it had no lawful entitlement to seize the proceeds of a sold home to repay the owner’s business debts.

NAB has conceded to the financial services royal commission it had no lawful entitlement to insist on seizing the proceeds of a sold family home to repay the homeowner’s small business debts.

The backdown appears to leave in ruins the bank’s strategy of aggressively cross-examining its customer Ross Dillon, a director of musical instrument importing business National Music.

NAB yesterday afternoon became the first big bank to seriously attack evidence given by a customer to the royal commission in a cross-examination that continued this morning.

Mr Dillon yesterday told the commission that he and his wife had sold their family home, Goanna Downs, and planned to inject up to $300,000 into their business and buy a smaller house.

The business was affected by a slowdown in discretionary spending during the global financial crisis.

But Mr Dillon was surprised and angry when his business banker let him know that NAB would be taking all the family home sale proceeds to reduce his credit facilities with the bank.

This meant Mr Dillon did not have enough money left from the sale to buy another home that they could use as security for the loan, which meant he felt he did not have an option to switch banks, he told the commission.

NAB general manager of strategic business services Ross McNaughton admitted that NAB had no lawful entitlement to insist on the full proceeds of Goanna Downs being used to pay down the debts of National Music.

Mr McNaughton only discovered this while preparing for the commission.

The Goanna Downs property supported the guarantee that Mr Dillon had given, but it did not directly secure the debts, Mr McNaughton agreed.

NAB did not hold security over the property in respect of National Music’s borrowings.

Instead, if the business went into default, and the business needed to repay up to $2.085m, then only in that case would the couple have a liability that they had offered their home as security for.

Mr McNaughton agreed that he removed from his statement to the commission a positive assertion that NAB was entitled to require the proceeds of sale.

But senior counsel assisting the commission Michael Hodge QC asked why the bank executive didn’t explain in his statement that NAB didn’t have a lawful entitlement to require the proceeds to be used to discharge National Music’s debts.

“I didn’t feel I had to because I had corrected my statement,” Mr McNaughton said.

Mr Dillon had given evidence that he felt he had to do what the bank was asking him.

Mr Hodge asked if NAB told its customer that the bank required all the funds from the house sale to be paid to the bank.

This was only a “proposal”, Mr McNaughton said.

Mr McNaughton did not think it was relevant to NAB’s “proposal” that NAB did not have a lawful entitlement to require the money.

Mr McNaughton said the “communication could be better” in Mr Dillon’s situation but “I wouldn’t say it was poor” and he did not think the communication was unfair.

Earlier, Mr Dillon faced intense cross-examination about his version of events, which he stood by.

NAB’s counsel Wendy Harris asked if the borrower had previously said he would use all the house sale proceeds to repay the bank.

But Mr Dillon emphatically insisted this was never his plan and that he always wanted to buy — not rent — a new home.