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What happens if my company is unable to repay the CBILS loan?

The Coronavirus Business Interruption Loan Scheme (CBILS), launched on March 13th 2020, to benefit UK businesses, has strengthened company finances and provided cash flow support over the Coronavirus COVID-19 pandemic.

However, with many businesses still experiencing financial distress, what happens if your company can’t continue repaying your CBILS loan? Can it be written off at some stage, or are you personally liable for the outstanding amount?

What are the risks of not repaying a CBILS loan?

If your company can’t repay its debt, you may be personally liable for a CBILS loan if you’ve provided a personal guarantee. When the UK government introduced CBILS, the government announced that CBILS loans less than £250,000 required no personal guarantees.

However, many lenders initially insisted that borrowers provide personal guarantees.

The lender leveraged a guarantee because the loan was important to your company’s financial stability. Many felt such a situation was not in line with the CBIL scheme.

Suppose you took a loan from the Coronavirus Business Interruption Loan Scheme (CBILS) for over £250,000. In that case, the lender might have demanded a personal guarantee, but the government did offer some protection against this:

  • The lender is unable to use your home as security.
  • The lender can recover up to 20% of the outstanding CBILS loan.

There are other instances where personal liability could become a factor if your company cannot repay a CBILS loan, including where director misconduct or wrongdoing has taken place in some form.

What options are available if your company needs help to repay a CBILS loan?

Getting additional finance

If you struggle to repay your CBILS loan, you may be eligible for other finance options to help with cash flow. While traditional forms of funding may not be available, businesses can explore other options, such as invoice finance, to stay afloat until economic conditions improve to recover fully over the long term.

This type of funding is more flexible than a conventional business loan. It gives a cash lump sum or regular inputs of working capital, which can help you stay current on creditor payments and avoid official insolvency.

However, what will happen if your company cannot repay its CBILS loan and therefore needs to go through the process of liquidation?

Creditors’ Voluntary Liquidation (CVL)

A CVL closes an insolvent company formerly. Suppose your loan from the CBIL scheme doesn’t have a personal guarantee, and there is no evidence of management misconduct. Therefore, the loan is part of other unsecured debt following liquidation and written off.

Once a company liquidates, the liquidator appointed investigates whether company directors contributed to its failure. 

If eligible, Creditors’ Voluntary Liquidation also allows you to claim redundancy pay as a director (subject to meeting specific criteria). 

Professional support from E K Employment Law

HBG Advisory has comprehensive knowledge of the redundancy claims process for directors and works closely with the Redundancy Payment Service (RPS). HBG Advisory has over 30 years of experience and provides bespoke advice to struggling companies, especially when you cannot pay Bounce Back Loans (BBLS) and Coronavirus Business Loans (CBILS).

Please contact John Waller on 0800 612 5448 to arrange a free, usually same-day confidential consultation.

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