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Can I Liquidate with an unpaid Bounce Back Loan

Can I liquidate with an unpaid bounce back loan? Written by: John A Waller. Revised September 26th,, 2022.

What is the Bounce Back Loan Scheme?

The introduction of the “Bounce Back Loan Scheme” (BBLS) in May 2020 was to provide emergency aid to distressed companies who did not have the option to borrow money under the Coronavirus Business Interruption Loan Scheme (CBILS).

The BBLS, small businesses could borrow up to 25% of turnover up to £50,000.

Lenders charged no interest for the first 12 months, and the loan 100% UK government guaranteed. Therefore, no need to provide assets as security or personal guarantees. 

What happens when you default on a bounce back loan?

Default on a bounce back loan compared to a personally guaranteed loan is significantly different, as the borrower does not have to repay the loan in default. Not as significant as defaulting on a personal guarantee loan, as lenders have no security over your assets.

The government advised lenders to maintain their usual procedures for chasing and enforcing loan defaults. Therefore, triggering threatening letters, court action, and bailiffs if you don’t pay.

The roll-out speed of the Bounce Back Scheme was unprecedented by the Treasury, leaving a trail of uncertainty with lenders and borrowers about how lenders recouped defaulted loans.

Many lenders believe the expected massive defaults remain beyond the resources of lenders, and the political impact will further damage lenders’ reputations.

Therefore, not paying the loan may not cause immediate, assertive recovery measures. However, you will either have to pay the loan or liquidate it. Dissolving your business remains impossible, while still owing a bounce back loan. 

Can I delay payments on my bounce back loan?

However, the “Pay as You Grow” repayment flexibilities include delaying all repayments for six months. Therefore, businesses can decide to make no payments on their loans until 18 months after they initially took them out.

What happens if you fail to repay a bounce back loan?

Should you fail to pay back the Bounce Back Loan? Your company is probably insolvent due to its inability to pay its creditors as and when they fall due.

Corporate insolvency means a director’s primary duty is to protect creditors, not shareholders. So you cannot pay anyone (employees, yourself or any other creditor) without the risk of showing preference. 

Showing preference of any kind can lead to: –

  • wrongful trading, 
  • A severe civil offence that can make directors personally responsible for the debts of their insolvent company, including using the bounce back loan to pay back a loan guaranteed personally, therefore deemed a preferential payment.

What Happens to a Bounce Back Loan in Liquidation?

Suppose the COVID-19 pandemic financially has affected your company, and unable to pay its creditors as and when they fall due. You, as a director, need to act quickly to protect creditors’ interests. If directors cannot save the company, the only option is to close the company by liquidation.

creditors’ voluntary liquidation CVL voluntarily closes a limited company with unpaid debts. A licensed insolvency practitioner (IP) requires appointing to realise the company’s assets to enable the repayment in a prescribed order to creditors, and finally closing the company and striking it from the registrar at companies house. 

Banks usually rank as secured 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 money generated by selling the company’s assets. However, not the scenario with a bounce back loan. 

A Bounce Back Loan remains an unsecured debt in liquidation, as the loan has no security over company assets. Unsecured debts remain rarely fully paid in liquidation. Therefore, as the UK government guarantees the Bounce Back Loan, the lender looks to the government for repayment.

Does the Bounce Back Loan need to be paid back?

Under the Bounce Back Loan Scheme, payments must be paid back over 6 or 10 years, commencing twelve months after receiving the loan.

How can a Lender personally make me Liable for Bounce Back Loans during Liquidation?

Suppose you cannot continue repaying your Bounce Back Loan. You will not be personally liable for its repayment, whether the company liquidates or otherwise. However, two situations exist risking personal liability: –

  • Paying specific creditors and not others

Bounce Back Loan Scheme allows borrowers to refinance existing company debt. Nevertheless, you must be careful if this path you want to take. If the company remains insolvent or becomes insolvent, you remain 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, and exposing yourself personally.

Directors often make preferential payments in cash, though it could be the transfer of an asset in part or full settlement of liability.

Once a business enters insolvency, the insolvency practitioner will examine transactions made during and in the period leading up to the insolvency. However, if they find that borrowers used the Bounce Back Loan to make payments to certain creditors, not others, you could personally be liable for the value of the payment. The Insolvency Service will also examine the transaction to determine whether your disqualification as a director is required. 

  • Using the loan other than for the benefit of the company

Few rules dictate the use of Bounce Back Loans. Provided the funds meet the broad goal of economically benefiting, directors can decide to use them as they wish, such as: –

  • settling company bills, 
  • purchasing supplies, 
  • paying staff wages.

However, reportsstate some directors took advantage of the scheme by using the funds to purchase personal assets, invest in property and pay off personal loans. 

An insolvency practitioner must be appointed if the company fails and enters into a formal insolvency procedure, such as: – 

When a licensed Insolvency Practitioner assumes the role of liquidator or administrator, they investigate the reasons for the company’s insolvency, including using the Bounce Back Loan. Suppose they find the loan has not been per the terms, an act called misfeasance. The company directors could then personally be liable for the repayment of the loan, risking personal assets. 

How does misconduct affect directors and the company?

Due to the misconduct:

  • The company risks a winding-up order by the court;
  • Disqualification as a company director for up to 15 years;
  • A Court Order to pay compensation to the creditors.

Other areas that may face examination: –

  • Job Retention scheme (furlough) and 
  • How was the Eat Out to Help Out program used?

Can I Liquidate with an unpaid Bounce Back Loan? and How to Avoid Personal Liability for Bounce Back Loans?

The Bounce Back Loan Scheme helps small businesses financially impacted by the coronavirus outbreak and struggling to repay their debts. Nevertheless, even with this extra funding, companies still fail, and company directors may be worried about the repercussions of the loan.

In particular, a bounce-back loan does not hinder you from liquidating your business. If borrowers use the loan correctly, the company’s debts remain paid from selling assets, and all remaining debts repaid. The insolvency practitioner examines previous transactions and conduct of the directors as part of their duty. Still, as long as you have performed your duties as a director and no evidence exists of the incorrect use of the Bounce Back Loan. Directors remain clear to move on then.

Can I Dissolve the Company with an unpaid Bounce Back Loan?


The Insolvency Service will soon have extra powers to investigate Bounce Back Loan fraud cases where companies dissolved.

Can I liquidate with an unpaid bounce back loan? – The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021

Will give the Insolvency Service powers to investigate and, if appropriate, take action to disqualify directors of companies who have fraudulently claimed Bounce Back Loans but have since dissolved. The power will be retrospective to allow conduct that took place before the law comes into force to be investigated.

Should any wrongdoing or malpractice be found, directors face sanctions, including: – 

  • disqualification as a company director of up to 15 years, 
  • criminal prosecution.

The measures included in the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 remain retrospective and will enable the Insolvency Service to tackle Directors who have inappropriately wound-up companies that have benefited from Bounce Back Loans.

So, the way forward remins to enter an insolvency process. If the company liquidates, the lender will get the money back from the UK government. So the lender will either: – 

  • wind up the company 
  • You can initiate the process yourself by using a creditor’s voluntary liquidation. 

If you want to liquidate your company quickly and easily, contact the team at HBG Advisory asking for John Waller.

Robust Expert Advice, available now. Telephone 0800 612 5448.

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