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Can I Liquidate With A Bounce Back Loan

Can I Liquidate With A Bounce Back Loan? Written by John A Waller, Director. July 20th, 2022.

Introduced in May 2020 by the UK government with over:

But even these attractive loans have not been enough to save some companies. Borrowers need to understand the consequences if you fail to repay the loan and your company liquidates.

Therefore, talk confidentially to one of our insolvency experts via live chat without obligation. We’ve helped many directors establish positive and practical solutions.

Can you write off a BBl?

Yes, however, only through liquidation.

However, trying to dissolve your company does not write off your BBL.

If I want to switch my banking to another provider, can I transfer my Bounce Back Loan Scheme?

Suppose you change to a new bank or lender. In that case, your Bounce Back Loan Scheme facility requires repaying or keeping with your original lender. Borrowers cannot transfer it to your new finance provider.

The BBL Scheme?

The Bounce Back Loan Scheme (BBLS) provides good terms launched by the UK government to give mall businesses a quick source of affordable funds. 

Small UK businesses could borrow 25% of turnover up to £50,000 through the Bounce Back Loan Scheme.

Notably, 

  • No interest charged for the first 12 months, and
  • The loan remains 100% UK government-backed. Therefore, directors do not provide assets as security or personal guarantees. 

What happens when you default on a BBL?

Defaulting on a BBL remains not as important as a loan with a personal guarantee. Unlike traditional loans, BBL lenders retain no security over assets whatsoever.

The UK government advised lenders to retain standard practices for pursuing and enforcing loan defaults.

So: –

  • threatening letters;
  • court action, and
  • Potentially bailiffs following up on borrower’s default.

The rollout speed of the Bounce Back Scheme left holes in the official legislation. One being lenders have to chase borrowers for unpaid loans through the courts.

Lenders believe the volume of loan defaults makes it impossible to chase all defaulters. Additionally, concerns about public reaction may be an issue.

The critical point of not paying back the loan remains unlikely to yield decisive and immediate action from your lender. 

Ignoring debt doesn’t mean the problem disappears.

So having an insolvent company means legal responsibility. Director’s duties and responsibilities have now resumed back to pre-pandemic times.

What happens if you don’t repay your bounce back loan?

Suppose your company cannot continue paying back the Bounce Back Loan. In that case, your company remains probably insolvent, as it may no longer repay debt as and when due.

The insolvency of a limited company puts directors at risk unless you comprehend what it means and how it transforms your responsibilities. Trading whilst insolvent is illegal.

Insolvency shifts directors’ primary duties to protect the interests of creditors, not company shareholders. Therefore, paying:

  • employees, 
  • yourself, 
  • Creditors.

However, risks preference. This risks directors from wrongful trading claims, a severe civil offence.

A further example: repaying a debt you guaranteed, in preference to other creditors and debts. However, it would be considered a preferential payment.

In liquidation, What Happens to a Bounce Back Loan?

If the COVID-19 outbreak hit your company hard and you cannot afford to repay its debts, you have to take action to protect the creditor’s interests. However, if the business remains no longer viable, you need to close the company.

creditors’ voluntary liquidation (CVL) closes a limited company voluntarily due to its unpaid debts. A CVL requires a licensed insolvency practitioner to be appointed to-

  • Sell all the business’s assets; 
  • repay the creditors in a prescribed order;
  • Close the company. 

Banks usually secure creditors if your company liquidates, as their debts remain secured against company assets. Therefore, they would be one of the first creditors to be repaid from the funds derived from selling the company’s assets. However, this does not apply with a Bounce Back Loan. 

The Bounce Back Loan lending terms clearly state the loan exists without your guarantee and rank as an unsecured debt in liquidation due to no security held. Additionally, debts of unsecured debts are rarely repaid in full, if at all. As the government guarantees the Bounce Back Loan, the lender pursues the UK government, not the borrower.

If you liquidate your company, are you liable for your BBL?

Borrowers remain not liable if you cannot repay your bounce back loan, whether the company liquidated.

Nevertheless, two situations affect potential personal liability.

1. Not using BBL for the benefit of the company

There are a few rules that determine how to use bounce back loans. However, as long as the funds meet the broad goal of economically benefiting the company, directors can decide to use them as they please. That includes:

  • Paying creditors of the business;
  • Purchasing supplies, and 
  • paying staff wages. 

However, as companies are failing, some directors used the funds to:-

  • pay off personal loans;
  • purchase personal assets;
  • Buy property. 

Suppose the company fails into a formal insolvency procedure, such as administration or liquidation. In that case, directors must appoint an insolvency practitioner. As administrators or liquidators, they investigate why the company failed, including how a bounce back loan was used. Suppose they find the loan remains used outside the terms lent, an act known as misfeasance. In that case, the company’s directors could personally be responsible for the loan’s repayment. This could risk personal assets, such as savings, vehicles and property. 

2. Paying certain creditors ahead of others

Under the Bounce Back Loan Scheme terms, the funds allowed companies to refinance existing company debt. However, take care if you follow this route. If the company remains insolvent or becomes insolvent, you are legally obliged to act in the best interests of creditors. Suppose repayments are made to certain creditors, not others, then as a company director. In that case, you risk making preferential payments that could lead to you being personally liable for the company’s debts.

A preferential payment could be a loan repaid to a connected party of the company, such as:-

  • A board member, 
  • relative or 
  • friend.

Unsecured creditors, HMRC, remain unpaid. 

A preferential payment remains often made in physical cash. Still, it could be the transfer of an asset in part or full liability settlement.

Once in a formal insolvency procedure, the insolvency practitioner examines all transactions made during and during the period leading to insolvency. Suppose they find the Bounce Back Loan was used to make payments to certain creditors, not others. In that case, you could personally be responsible for the value of the payment. The Insolvency Service also scrutinises the transaction to determine whether you face disqualification as a director for up to 15 years. 

Steps to avoid liability personally for defaulted Bounce Back Loans?

The Bounce Back Loan Scheme was designed to help small UK businesses financially impacted by the coronavirus outbreak and struggling to repay their debts. Nevertheless, companies still fail regarding directors about the potential implications of the loan.

Notably, a Bounce Back Loan does not prevent you from liquidating your company as usual. As long as the loan remains correctly used, the company’s debts remain repaid from selling assets, and all remaining debts written off. Once appointed, the insolvency practitioner commences an investigation. However, if you performed your director’s duties and used the Bounce Back Loan correctly, you should not have any issues.

Expert Advice: – A Click Away

Contact the team at HBG Advisory for Bounce Back Loan Support asking for John Waller if you intend to refinance existing company debts.

We provide a:

  • free, no-obligation initial consultation.
  • Our team remains approachable.
  • Robust professional advice.

Bounce Back Loan advice for Company Directors

Directors should seek professional advice if they have Bounce Back Loan worries regarding repayments. The UK government introduced the COVID-19 support scheme to support businesses through the pandemic. owever, repaying the loans has been difficult. So ensure you seek advice sooner than later.
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