Liquidation and Bounce Back Loans

Liquidation and bounce back loans. Written by: John A Waller Consultant. Reviewed May 30th,2024.

Stop the worry and sleepless nights worrying about not being able to repay your limited company loan (bounce back loan). The stories you hear down at the pub about what happens are exaggerated. Speak to the experts and move on with your life.

In May 2020, the UK Government introduced bounce back loans to help businesses with cash flow due to COVID-19 through unsecured business loans. It allowed traditional lenders to provide unsecured loans by the borrower for up to £50,000 subject to certain criteria.

The BBL scheme was not a start up loan. However they did apply to small businesses as a company loan for those who struggled raising business finance.

The UK government guarantees 100% of the company loan, and there won’t be any fees or interest to pay for the first 12 months. After 12 months, the interest rate will be 2.5% a year.

The loan is six years, but businesses can repay early without paying a fee.

However, company directors are concerned about the consequences of having a limited company loan and their own liability.

So what happens if I can’t repay my bounce back loan?

Can I liquidate my business if it has a Bounce Back Loan (BBL)?

Yes, you can.

Bounce back loans are classified as “unsecured debt” in insolvency. With a bounce back loan, the business loan provider must wait for repayment by the liquidator.

So, if you want to liquidate your company by a Members Voluntary Liquidation, and your company remains solvent. Then you’re required to repay the loan in full.

However, closing the company using a Creditors Voluntary Liquidation requires your company to be insolvent. Therefore, the company remains unable to pay its debt when due, or liabilities remain greater than its assets.

So allowing your limited company to be closed with a compulsory liquidation does not affect you as director of liability for the loan, provided you have complied with the loan terms and are not accused of wrongful trading.

Liquidation and Bounce Back Loans – Insolvency

This leads to companies considered solvent now facing insolvency.

However, essential directors consider all options moving forward and discuss cash flow with a Licensed Insolvency Practitioner.

Having a CBILS (Bounce Back Loan) outstanding should not deter you from liquidating your company.

Liquidation means an end to all debt of your company. However, the obligation for the Bounce Back Loan ceases with the director once the liquidation process is complete.

R3, the professional body for insolvency practitioners, has written advice on bounce back loans FAQ for insolvency practitioners, which further details the implications of a bounce back loan in insolvency.

Liquidation and Bounce Back Loans-Can a BBL Be Written Off?

No

Bounce-back loans remain not a traditional bank loan. 

Will bounce back loans be writen off by the lenders without liquidating my company.

No

Will bounce bank loans be written off with liquidating my company.

Notably, borrowers have not provided any security or guarantee. However, the UK Government, via the British Bank, guarantees the loans issued. 

Bounce back loans only applied to limited companies, not individuals. 

So if your business fails, the company enters either a company administration or even a liquidation. Thus, the company loan remains then written off as part of one of the processes.

What Happens if I Used My Companies BBL for Personal Use?

Using a bounce back for reasons other than the company’s ongoing survival may be considered fraudulent when paying off personal debt.
Failure to repay the loan back may trigger the appointed insolvency practitioner to examine the money received. However, if it is outside its proper usage, it is therefore open to prosecution.

Liquidation and Bounce Back Loans – Personal Liability?

The BBL Scheme was created to help small businesses directly affected by the COVID-19 coronavirus pandemic. However, even with this additional support financially, many companies are beginning to fail, causing distress for many directors.

Directors need to be advised. A BBL does not, however, stop you from considering liquidating your limited company. Subject to you utilising the unsecured business loan, as detailed in the offer. Liquidators will continue to realise the company’s assets to repay creditors and write debts if the money is insufficient. As part of the liquidator’s regular duty, the insolvency practitioner conducts a statutorily required investigation into the conduct of the directors up to their appointment. Providing no misfeasance exists, directors can move on, acting again as directors in a new company.

Liquidation and Bounce Back Loans? – Directors duties & Responsibilities

So suppose you find that your company now has financial difficulties due to the prolonged period of the Coronavirus COVID-19 virus after taking a BBL. As a responsible director, you should adhere to your directors duties and responsibilities, and contact a licensed Insolvency Practitioner for advice.

Trading while insolvent can however open you up to personal liability. So, it is therefore important to take advice.

What happens to the loan in liquidation?

If you decide to liquidate your company, the unsecured business loan is treated as an “Unsecured Creditor”.

Directors of a limited remain protected as long as they have acted responsibly.

A limited company offers limited liability.

Am I responsible for the BBL in any way?

No.

As you have signed no personal guarantee, you are then not personally liable, as the government guaranteed the loan.

Alternatives to BBLs?

Whatever circumstances you remain in, if a Bounce Back Loan application declined, and your business requires additional working capital, other options exist for consideration.   

Although the Bounce Back Loan terms are attractive, they may not give you the best chance of survival. For example, invoice finance, which provides quick access to capital, requires different repayment regimes. It will give you access to a percentage of the company’s unpaid invoices within just 24 hours of being sent to the customer to ease cash flow issues now and in the future. Unlike a Bounce Back Loan, this sort of funding allows flexibility to use as and when without long term agreements. 

Being unable to claim a Bounce Bank Loan requires considering a commercial loan, high street banks and specific lenders.   

Liquidation and Bounce Back Loans – Closing down a Limited Company.

To close an insolvent limited company, a licensed Insolvency Practitioner must be appointed Liquidator.

Many clients ask what is an Insolvency Practitioner?. Hopefully, having read the above, you will understand how they help distressed directors resolve issues with their companies.

For further help with Bounce Back Loan support, please contact John Waller on 0330 056 3120.

Liquidation and BBLs – Does redundancy apply in a liquidation?

Once the liquidation of your limited company commences, former employees, if unpaid, are considered preferred creditors of the company. Therefore, once the company’s payment of any secured creditors is complete, they will be paid. 

Employees usually have further claims against the company for:

  • Redundancy Pay;
  • Payment in lieu of notice;
  • Unpaid accrued holiday pay.

Often in insolvent liquidations, the company is unable to pay the above. Nevertheless, the redundancy payment service protects employees, requiring the appointed liquidator and the team to assist in the claims.

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