Liquidation and Bounce Back Loan Impact?

Liquidation and Bounce Back Loan Impact? Directors concerns?

Can a Company Be Liquidated if I have a Bounce Back Loan?

November 26, 2020, by John Waller

With the ongoing Coronavirus COVID-19 pandemic impacting heavily on the economies of the world. The introduction of the bounce back loan introduced in May 2020 and Topped Up in November 2020 offering bolstering support to UK businesses who are struggling.

What is a Bounce Back Loan? What occurs if you want to liquidate your company after receiving a bounce back the loan? 

Information on Bounce Back Loans and company liquidation for concerned directors:

  • What then is a Bounce Back Loan?

Following the critique of the Coronavirus Business Interruption Loan Scheme (CBILS), the UK chancellor declared the Bounce Back Loan Scheme to bolster small businesses throughout the UK to obtain access to funds faster. Initially, set up to expedite and simplify loan applications method for UK business.

Qualifying applicants may apply for bounce back loans up to 25% of their net turnover capping at £50,000. The loan has no interest or fees to pay in year one.

The Scheme proves popular as banks require no personal guarantee. The Government guarantees the loan 100%

The Coronavirus Business Interruption Loan Scheme, however, offers guarantees of 80% in the event of failure to repay.

  • Bounce Back Loans – What they may and may not be used for? 

Bounce Back Loans received, must provide benefit to the business.

Benefits to a business This could include a range of things, from boosting cash flow to paying bills and paying salaries.

The loan may replace existing borrowing!

The loans are considerable cheaper than commercial loans and assist in reducing businesses operating cost. However, rumours suggest that some directors have used loans for personal use. The impact is that the directors have potentially created overdrawn directors loan account!

Suppose If this is the case and the company fails, personal liability issues could arise – see below for more on this!

  • Do Bounce Back Loans require repayment?

Yes; if your business still trades, then your business is 100% liable to repay the loan—banks who lent the money, along with the HMRC. Consider the loan as a simple loan except guaranteed by the HM Gov. Therefore repayable and not a form of a gift. 

So then, the Limited Company fails? The protocol by lenders will follow up on loan defaults remains right now not clear. Will it be at all possible for lenders to manage the potential defaults looming? 

  • If I can’t pay it back the loan then will the Bounce Back Loan be written off?

Yes if Insolvent. Liquidation of a company (Separate legal entity)deals with the companies debt through writing debts off along with a bounce-back loan if no funds are available? 

  • Can a director, therefore, liquidate their limited company while having a Bounce Back Loan unpaid?

Perhaps the most asked question at HBG Advisory. 

The answer is:

Yes, you can. 

Often, with additional working capitals, it might be impossible to continue trading in the current climate – and if your business has become insolvent, recovery might not be an option. 

If your company has a Bounce Back Loan, then consider a Creditors Voluntary Liquidation (CVL) if your company is insolvent?  

  • So, my Bounce Back Loan. What happens if I Liquidate?

The Bounce Back Loan in a liquidation ranks as an unsecured creditor. Therefore, the lender may not be repaid by the liquidator as they are unsecured, and then the liability rests on the HM Government as guarantor.

Usually, financial lenders such as banks have security by way of fixed or secured charges over business assets. So, lending large amounts of money affords them being first in line for repayment.

However, not with a Bounce Back Loan, due to the Government, guaranteed lenders their money. Directors did not use assets to offer any security as that was not a condition.

So, any money available from the realisation of assets means the financial provider who made the Bounce Back Loan, therefore repaid. If not, HMRC will reimburse the lender, as per the terms of the BBLS. 

  • What is the impact on me as a company director?

Company director, have no chance of losing personal assets as with secured bank loans secured with a guarantee.

So, debts in a liquidation ceasing at the end of liquidation then may commence a new business or a director of another company providing as a former director, no issues brought to the attention of the liquidator for action against the director.

So, directors can liquidate their companies, draw a line on debt and not have to repay the debt and start afresh. However, borrowing money moving forward may be difficult. 

  • So, I remain not liable for my Bounce Back Loan personally?

Yes.

When the liquidation takes effect, personal guarantees are called in by the lender, and the guarantor is then liable.

However, Bounce Back Loans are 100% guaranteed by the HM Government only and does not include any personal guarantees what so ever. 

  • Do any exceptions exist?

The Scheme provides no cover for directors who with intent attempted fraudulent trading or any abuse of the terms of the Scheme what so ever.

Part of the liquidation requires the directors’ conduct investigated before the liquidator’s appointment. Any misfeasance or wrongful trading exposes the directors to liabilities of the company personally. Directors when applying for bounce-back loans were all asked to verify that their companies were solvent and not insolvent when applying and then receiving a payout.

This clause exists to make directors aware that bounce back loans were not money for an already insolvent company. But to offer genuine support for struggling businesses.

However, if it is proven, directors made fraudulent applications, and they had knowledge of their companies insolvency, or the loan remained for 100% personal gain. Then, the liquidator remains obligated to disclose this to HMRC.

What’s more, the Bounce Back Loan requires the user to provide an economic benefit to the business.

However, Suppose they had prior knowledge that the company may not afford to repay the loan. In that case, a risk runs for the company directors and could expose them to a personal liability claim. 

How to close your company with a Bounce Back Loan owed?

Directors of limited companies are required to act fast when financial trouble looms.

Directors priority remains to protect the creditors of the company before any other when experiencing Insolvency. Failure to do so exposes directors to censure, therefore, take immediate action even with a bounce-back loan. Seek professional advice as soon as possible. 

Further information on ‘How Do I Liquidate My Company’?

Do not avoid taking steps to secure you and your creditors’ position. Your primary concern as a director is always to protect creditors first. SO, the quicker to act, the options open to you afford you greater scope.

Conclusion

Therefore, responding to “what is a Bounce Back Loan and can I liquidate my company if I have one?” the support preferred was introduced to help UK businesses encountering financial difficulty due to the coronavirus pandemic. However, companies are now showing signs of Insolvency despite the loan. The second lockdown adding additional pressures as the pandemic continues despite news of vaccines. So directors should consider liquidation if their circumstances require such a procedure. 

If the Coronavirus COVID19 Pandemic is impacting on your business, please then contact HBG Advisory today for FREE, confidential support. Our experienced specialists possess years of expertise in liquidation and can extend impartial advice with no obligation. Please don’t suffer alone; HBG Advisory and our team are here to help you!

HBG Advisory does not require your personal or company information to talk and answer your initial questions on your situation:

Call 0800 612 5448 or Book a VIRTUAL meeting safe and private in the privacy of your home or place of work, for assistance with a Bounce Back Loan and liquidation.