The NAB says it treated a customer with 'integrity' when it laid claim to cash from a property sale it wasn't legally entitled to

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  • The NAB admitted today it didn’t have a legal entitlement to the proceeds from a sale of a property it used to pay down debt on a business loan.
  • A senior manger said the bank had treated a customer with integrity and courtesy despite not informing him that the property actually wasn’t security for the business.
  • At the start to a hearing of the financial services royal commission today, a senior NAB manager removed from his written statement a claim that the bank was entitled to the proceeds of the property sale.

The NAB has agreed that it didn’t have a legal entitlement to use cash from the sale a property to pay down a loan against a business, National Music, the financial services royal commission was told today.

The commission has been looking into the case of Ross Dillon who sold his farm, and family home, Goanna Downs for $2.2 million because, he says, he was under pressure from the NAB to pay down debt held by his then struggling National Music, a musical instrument importing business.

Dillon has said the plan was always to use some of the proceeds from the farm sale in 2015 to buy a house in Melbourne and that property would then be used to support the loan for his business, National Music, which had seen a downturn during the GFC.

After paying out the $1.15 million mortgage, about $200,000 cash would go to pay down debt and the rest for a small residential property in Melbourne.

However, NAB used the entire proceeds of the farm sale to pay down the National Music loan, leaving Dillon without the means to buy a home.

Dillon has said he wouldn’t have agreed to sell at $2.2 million if he had known the bank would take the lot. He had a buyer who would have paid $2.5 million in 12 months time but felt pressured to get a sale done quickly.

Today in the royal commission, when questioning Ross McNaughton, a general manger at the NAB, it became clear the Goanna Downs property was not listed as security over the National Music debt.

“It didn’t directly secure the debts of National Music,” said McNaughton.

Michael Hodge, QC, senior counsel assisting the commission, asked: “You now understand NAB has no lawful entitlement to insist on the full proceeds of sale being used to discharge National Music’s debt?”

McNaughton replied: “Yes.”

Dillon and his wife only had personal liabilities against the business loan and they were not in default.

At the start of his evidence today, McNaughton removed from his written statement a claim that NAB was entitled to the proceeds of the property sale.

McNaughton, when asked why he hadn’t explained that NAB didn’t have an entitlement to the property proceeds, said: “I didn’t feel I had to because I had corrected my statement.”

Hodge: “Why was it not possible to communicate the bank’s intentions (to use the property proceeds) earlier?”

McNaughton: “I don’t think the bank was involved in the sales process.”

The governing principles of McNaughton’s stated that “we won’t avoid difficult conversations with our customers and will clearly articulate and relate the bank’s position and the basis of our decision”.

McNaughton agreed that the bank’s position in the Dillon case could have been made clearer.

Hodge: “Do you regard the treatment of Mr Dillon in this case as acting with integrity.”

McNaughton: “Yes, I do.”

Hodge: “Do you regard the treatment of Mr Dillon as being done with respect and courtesy?”

McNaughton:”Yes, I do.”

Hodge: “And the fact that it wasn’t communicated at an earlier time doesn’t change that?”

McNaughton: “No, it doesn’t.”

Hodge: “Do you regard the fact that you didn’t explain in your statement (given to the commission) that you had identified that the facilities of National Music weren’t secured directly by Goanna Downs as acting with integrity?”

McNaughton: “Yes, I do.”

Hodge: “Do you accept that it’s a matter of some significance in considering this case that the National Australia Bank did not have its National Music facilities directly secured by Goanna Downs?”


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