Am I liable for a Bounce Back Loan on liquidation?
If you are the director of a failing business with an outstanding Bounce Back Loan, you’ll understandably be concerned about what happens to that loan if the company cannot repay it.
The good news is that company directors were not required to sign a personal guarantee to secure the loan. As part of the Bounce Back Loan Scheme, the government gave lenders a 100% guarantee to ensure their funds would be repaid if the borrower went bust.
However, there are still risks for company directors. If you have an outstanding Bounce Back Loan that you cannot pay, you must close the business in the right way. There will be an investigation into your conduct in the period leading up to and during your company’s insolvency. If you misused the Bounce Back Loan or acted unlawfully, the liability for repaying the loan could fall on you personally.
What happens if my company cannot repay a Bounce Back Loan?
What happens if my company cannot repay a Bounce Back Loan?
If you’re struggling to repay a Bounce Back Loan, contact your lender and ask about the Pay As You Grow Scheme. It can give you greater flexibility over the repayments by allowing you to take a six-month repayment holiday, pay only the interest for six months or extend the loan term from six to 10 years. But even with that extra flexibility, it may not be enough.
When a company cannot pay its debts, it is insolvent. At that point, you should cease trading and contact an Insolvency Practitioner. If they cannot rescue your company, liquidation is likely to be your best option.
A strict hierarchy that determines the order in which debts are paid on liquidation. Bounce Back Loans are treated as an unsecured debt and are the last to be paid, which means they’re rarely repaid in full.
However, as you did not sign a personal guarantee and as long as you have complied with your duties as a company director, liability for the outstanding Bounce Back Loan will not pass to you. Instead, the lender will pursue the government to repay the loan in full.
How do I close a business with a Bounce Back Loan?
If your business cannot make its Bounce Back Loan repayments when they’re due and it’s no longer financially viable, you have little choice but to close it down. You can close your insolvent company voluntarily via a process called Creditors’ Voluntary Liquidation (CVL).
You must appoint an Insolvency Practitioner to act as the liquidator. They will sell the company’s assets and use the proceeds to repay its creditors as much as possible. Any outstanding debts, including the Bounce Back Loan, will be written off.
Over the last few years, some company directors have attempted to close businesses with outstanding Bounce Back Loans via a process called Company Strike Off. Although it is an inexpensive and relatively simple company closure method, Strike Off is only suitable for solvent companies that can repay all their debts in full before they close.
The government is cracking down on company directors who use Strike Off to close businesses with a Bounce Back Loan by subjecting them to a full investigation by the Insolvency Service. If it finds the directors have misused loan funds or been involved in misconduct or wrongdoing, they can be made personally liable to repay the loan. They can also be disqualified from acting as a company director for up to 15 years.
What should I do if my company cannot repay a Bounce Back Loan?
What should I do if my company cannot repay a Bounce Back Loan?
If your company has unmanageable debts including a Bounce Back Loan, you should contact a licensed Insolvency Practitioner immediately. That demonstrates your intention to take your legal duties as a company director seriously.
They will assess your financial situation and explore all the options to rescue your company. That could be through alternative finance methods, informal debt repayment agreements or formal insolvency procedures such as Administration or a Company Voluntary Arrangement (CVA).
If the company is beyond recovery, they will discuss your options to close the business. A Creditors’ Voluntary Liquidation is likely to be your best option, as it shows you are meeting your legal duties by prioritising your creditors’ interests. It also reduces the likelihood of misconduct or wrongful trading accusations that could lead to severe penalties.
Need advice?
Need advice?
If your company cannot repay a Bounce Back Loan, we can explain your options and guide you on the best route forward while protecting your interests. Contact our team of Insolvency Practitioners for a free, same-day consultation or arrange an in-person meeting at one of our offices in Scotland.
