Liquidation and Bounce Back Loans
Can I liquidate my business if it has a Bounce Back Loan?
Yes, you can.
Bounce back loans are classified as “unsecured debt” in insolvency. That is the loan provider in a bounce back loan must wait in line for repayment by the liquidator.
If you wish 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 either pay its debt as and when due, or liabilities remain greater than its assets.
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 terms of the loan and are not accused of wrongful trading.
Bounce Back Loans and Insolvency
This leads to companies considered solvent, now facing insolvency.
However, important directors consider all options moving forward and discuss cashflow 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. The obligation for the Bounce Back Loan however 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.
Can a Bounce Back Loan Be Written Off?
Bounce-back loans remain not a traditional bank loan.
Borrowers have not provided any security or guarantee. However, the UK Government, via the British Bank, guarantees the loans issued.
Bounceback loans only apply to companies and not to individuals.
Therefore, the business experiences unmanageable financial issues.
Then the company enters either a company administration or even a liquidation. Thus, the loan remains then written off as part of one of the processes.
What Happens if I Used My Companies Bounce Back Loan 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 pay the loan back may trigger the appointed insolvency practitioner to examine the money received. If it is outside the parameters of its permitted usage however, then it is therefore open to prosecution.
Liquidation and Bounce Back Loans & Personal Liability?
The Bounce Back Loan Scheme was created to help small businesses directly affected by the COVID19 coronavirus pandemic. However, even with this additional support financially, many companies are beginning to fail, causing distress for many directors.
Directors need to be clearly advised. A Bounce Back Loan does not however stop you from considering liquidating your limited company. Subject to you utilising the loan, as detailed in the offer. Liquidators will continue as usual, realising the company’s assets to repay creditors and write debts of should monies be insufficient. As part of liquidators normal duty, the insolvency practitioner conducts a statutory required investigation into the conduct of the directors up to their appointment. Providing no misfeasance is evident, directors are free to move on, acting again as a director in a new company.
Liquidation and Bounce Back Loans? – Directors duties
So, suppose you find that after taking a bounce back loan, your company now experiences financial difficulties due to the prolonged period of the Coronavirus COVID 19 virus. Then as a responsible director, you should contact a licensed Insolvency Practitioner for advice.
Trading while insolvent can open you up, however, 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 loan is then 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 bounce back loan in any way?
As you have signed no personal guarantee, you are then not personally liable, as the government guaranteed the loan.
Alternatives to a Bounce Back Loan?
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, it may not give you the best chance of survival. For example, invoice finance, which provides quick access to capital, requiring different repayment regimes. It will give you access to a percentage of the company’s unpaid invoices within just 24 hours of them 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, please contact John Waller on 0800 612 5448.
What happens to redundancy pay 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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Consequences of not repaying a Bounce Back Loan