An inability to produce key files to a court hearing has forced National Australia Bank to write off A$2 million in business loans to a Sydney couple.Justice Michael Slattery last week set aside the mortgages and guarantees provided to the bank in December 2004 "on several grounds, including misleading and deceptive conduct by the bank through its officer for breaches of fiduciary duty, for contraventions of the ASIC Act and under the Contracts Review Act."First time entrepreneur Craig Smith obtained the loan to buy a hire equipment for the business, Statewide, of which he was a senior manager. His wife, Denise Vitalli-Smith, and other family members, were also parties to or guarantors on a loan taken in late 2004.The borrowers' case centred on the quality of the bank's appraisal of the most recent trading data for the business at the time they sought the loan.In his judgment last week, Justice Slattery wrote that "the expert witnesses agreed that it could be inferred from the historical management accounts that Statewide would be unable to meet its principal and interest payments on the facility being offered. "Mr Soper [a bank officer] thought that more work needed to be done to verify whether the cashflow forecasts were right. The principal problem was that the inference of serviceability depended on a 47 per cent increase in revenue that was evident only in the September quarter of 2004. "But the author of the reporting for this very recent September quarter period (a period that had ended just over two weeks before the date of the Credit Memorandum) could not be verified. "All the witnesses agreed that the trading for this three month period needed to be investigated further, because so much of the future loan serviceability depended on it. "There is no evidence the bank did such an investigation and that the results may have since been lost. I am not prepared to infer that such an investigation was done and is now lost. "Not to do such an investigation did not confirm with prudent banking practice."