Liquidation and Bounce Back Loans?

Liquidation ans Bounce Back Loans. Can I liquidate my business if it has a Bounce Back Loan?

Yes.

If your company though remains solvent and you wish to liquidate your company using a Members Voluntary Liquidation. 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 able to either pay its debt as and when due or liabilities greater than it’s assets.

Bounce Back Loans and Insolvency

This leads to companies considered solvent, now facing insolvency.

However, important directors consider all option moving forward and discuss cashflow with a Licensed Insolvency Practitioner.

CBILS (Bounce Back) Loan should not deter you from liquidating. Liquidation means an end to all debt of your company. The obligation for the Bounce Back Loan disappears once the liquidation process complete.

Can a Bounce Back Loan Be Written Off?

Bounce Back loans issued by UK banks remain not a traditional bank loan. 

Borrowers have not provided any form of security. The UK Government, via the British Bank, guarantees the loans issued. 

Bounce back loans only apply to companies and not however, private individuals. 

Therefore, in the event, the business experience unmanageable financial issues. Then the company enters either a company administration or even a liquidation. Thus as part of one of those processes, the loan remains written off.

What Happens if I Used My Companies Bounce Back Loan for Personal Use?

The use of a bounce back for reasons other than the companies ongoing survival may be viewed as fraudulent when paying off personal debt.
Failing to pay the loan back, may trigger the appointed insolvency practitioner to examine the use of the money received. If it falls outside the parameters of its permitted usage, therefore opens directors up to being personally liable for its repayment and open to prosecution.

Personal Liability for Bounce Back Loans?

The Bounce Back Loan Scheme was setup to help  small businesses in the UK who experience financial hardship due directly to the coronavirus COVID19 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 that  a Bounce Back Loan does not stop you considering  liquidating your limited company. Subject to you utilising the loan as detailed in the offer. Liquidators will carry on as usual realising the companies assets to repay creditors and write debts of should monies be insufficient. As part of a liquidators normal duty, the insolvency practitioner carries out a statutory  required  investigation, into the conduct of the directors up to their appointment. Providing no misfeasance is evident then directors are free to move on, acting again as a director in a new company.

Liquidation and Bounce Back Loans? – Directors duties

Suppose you find that having taken a bounce back loan, that 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 to personal liability. So, important to take advice.

What happens to the loan in liquidation?

If you decide to Liquidate your company, then the 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 liable for the bounce back loan in any way?

No.

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

Alternatives to a Bounce Back Loan?

Whatever circumstances you see yourself 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 your 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 then considering a commercial loan, high street banks and specific lenders.   

Closing down a Limited Company.

To close an insolvent limited company requires a licensed Insolvency Practitioner to be appointed as Liquidator.

For further help, please contact John Waller on 0800 612 5448.

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