Dissolving a company with a bounce back loan

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A Company with a Bounce Back Loan - Can I Dissolve it?

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Can you dissolve a company with a bounce back loan?

Can you dissolve a company with a bounce back loan?

No.

During the present COVID-19 pandemic, the effect and length of the pandemic have impacted many businesses’ cash flow. The bounce-back loan scheme has proven insufficient as the pandemic extends. Many companies now have run out of money and are even having to consider their viability.

As the prospect of insolvency looms, many directors seek to dissolve their company while having an outstanding bounce-back loan.

Directors are seeking a low-cost exit route for both the company and themselves. 

Liquidation has a cost, and so many directors consider attempting to dissolve their company rather than liquidate.

This option, however, only exists if all debts remain settled, and most importantly, HMRC has agreed. To chance, such action is foolish and will not close legally the affairs of the limited company.

Therefore, please read on and if in doubt, please contact the team at HBG Advisory for further assistance.

Legal way to close a company with a bounce-back loan outstanding?

If you want to close a company with a bounce-back loan, it is still possible to eliminate debt and close.

With a creditors voluntary liquidation, a licensed insolvency practitioner then deals with the company creditors, sells any assets to pay debts, and finally strikes the company off as part of the process.

If anxious that you may however not have funds, you may apply for directors redundancy payments offered by HMRC, provided:

  • Your company has traded for two years or more
  • You worked 16 hours or more for the company weekly
  • Paid through the firms PAYE scheme, and not solely a dividend.

For further reading, please view ‘bounce back loans and liquidation‘.

Can Directors Close a Limited Company with a Bounce Back Loan?

Any limited company may close. However, directors must carry out their legal duties.

Bounce-back loans remain debt like any other. However, they differ from traditional loans, as they did not require the borrower to give a personal guarantee. Therefore, the lender has no security or ability to take action against individuals or, as is rumoured, repossess individuals’ homes.

If you’ve realised the company is no longer viable and want to then close it down, that’s understandable. But you’ll now need to proceed correctly, and when you have a limited company with debt, this doesn’t mean then dissolving or striking off.

That option is reserved for limited companies with no debt and needs to be struck off the register at company house.

For companies with debt, voluntary liquidation is then the correct legal option.

For further reading, please view ‘how to close down an insolvent limited company‘.

What Happens if You Dissolve a Limited Company with a Bounce Back Loan?

If you try to strike off your company, you will receive a letter known as the ‘Objection to Company Strike Off Notice’ despite an existing debt.

These letters indicate that Companies House has picked up debts, and your conduct is therefore challenged.

These objections are usually, however, by HMRC, who monitor Companies House, for companies attempting to close their company without HMRC clearance.

In the bounce back loan case, objections are likely to come from the finance provider to whom the bounce back is owed. 

Notwithstanding HMRC’s guarantee of bounce back loans, the burden for tracking repayment defaults remains with lenders who must apply their standard debt enforcement protocols.

However, strike-off action by company directors must comply with the statutory requirements to inform the company creditors. To strike off a limited company, as per the UK government site: ‘If your company has creditors, members, employees, and other creditors, then you should inform all the necessary people before applying. ‘

Can HMRC Reinstate a Dissolved Company?

Yes!

HMRC can however reinstate a limited company that historically was removed from the company house registrar, if struck off incorrectly.

For company directors believing a strike-off provides a quick resolution, they should however seriously note the above.

You can find the law in Section 1003 (6) of the Companies Act. 

“The liability of every company director, managing officer, and member of the company remains and may be enforced as if the company had not dissolved.” 

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