The Bounce Back Loan Scheme (BBLs) was introduced during the coronavirus pandemic by the UK government to offer financial help to businesses struggling due to COVID-19. Continue reading as we discuss what support is available for your business if you cannot repay your Bounce Back Loan (BBL) and if you can close your limited company with an outstanding BBL?
What is a Bounce Back Loan?
The government offered the BBLS during the coronavirus pandemic to offer support to businesses who were struggling to help them get back on track and access emergency finance quickly. Under the BBLS, companies could access up to 25% of turnover to a maximum of £50,000 to help keep them afloat.
One of the scheme’s benefits was that the loans were interest-free for the first 12 months, and the loans were 100% government-backed for lenders. This meant that there was no need for assets to be provided as security, and company directors did not have to provide personal guarantees.
What happens if you are not able to repay the Bounce Back Loan
If the business cannot repay the BBL, it may have reached a state of insolvency. If you’re insolvent, as a director, you have a statutory duty to put creditors first, which means:
- You should seek advice from a licensed insolvency practitioner as soon as possible
- Inform yourself about your directors’ duties during insolvency and demonstrate your intention to place creditor interests first
- Keep careful notes of any actions taken
If your business is not able to meet the monthly loan repayments but is otherwise solvent, the UK government offers the following options as part of the Pay as You Grow scheme:
- Extend the loan term from 6 to 10 years
- Take up to 3 periods of 6 months interest-free only repayments during the loan time
- Request a 6-month repayment holiday (only available once)
What happens to a Bounce Back Loan when a company is liquidated?
If your company has been hit hard by the pandemic and cannot repay the BBL, you may consider closing down your limited company. You should seek help from a licensed insolvency practitioner as soon as possible as you may be able to avert closure using a range of insolvency solutions in the UK.
If your business cannot be saved, enlisting the help of an insolvency practitioner demonstrates your intentions to place the creditor interests first – a legal duty of directors of insolvent companies.
A creditors voluntary liquidation is the formal process of closing down an insolvent company and dealing with the outstanding debts in the process. The insolvency practitioner will then sell any remaining assets and divide the money between the creditors in order of priority.
The BBL becomes an unsecured debt when you enter into liquidation as the loan is not secured against company assets. If there is money from the realisation of assets, the financial provider who made the BBL will be repaid. If the debt is not repaid, the lender will pursue the government as per the terms of the BBLS.
Do I have any Personal liability for an unpaid Bounce Back loan?
For limited company directors, by nature of the company structure, you have ‘limited liability from any debt incurred by the business. Unless you have signed a personal guarantee. This is also the case with the BBL’s, as one of the critical factors of the loan was that the government did not enforce personal guarantees.
An insolvency practitioner will be appointed if a company enters into a formal insolvency procedure such as liquidation or administration. As part of the process of closing down the company, the liquidator or administrator will investigate the reasons for the company’s insolvency, including how the BBL has been used. If the BBL has been used correctly, there should be no personal liability, with the following exceptions:
- If you’ve committed fraudulent or wrongful trading or other directorial misfeasance
- Where there’s evidence that the directors abused the loan scheme or used it inappropriately
- Where a loan was taken out with the knowledge that the company was already insolvent
- Where the loan has been used to pay off another loan (for example, a personal guarantee) and could be viewed as ‘showing preference’ and could be construed as fraudulent
If your business has received a BBL and cannot meet the repayments, it is advised you contact a licensed insolvency practitioner. They can provide you with an initial consultation to discuss your circumstances and explain your options.
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