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Writing off a Bounce Back Loan

Will Bounce Back Loans Be Written Off

Will Bounce Back Loans Be Written Off? Written by John A Waller. Director. Reviewed November 29th, 2022.

Can my limited company write off its Bounce Back Loan (BBL)?

Limited companies which received Bounc Back Loans often asks lenders “will bounce back loans be written off”?

The answer remains no if you simply stop paying.

However, Liquidation and bounce Back Loans is the answer to writing off a nnl.

However the answer remains yes if your company liquidates using a creditors voluntary liquidation (CVL). This of course assumes no monies remains available in liquidation to repay the lender. Therefore the UK government steps in subject to no fraudulent activity and repays the lender for the defaulted loan.

Bounce Back Loans (BBLs) cannot be written off while your company remains active and trades. However, your lender may renegotiate repayment terms by extending the loan or offering you a repayment holiday. You can only write off your loan scheme BBLs if the company becomes insolvent and subsequently enters liquidation, either through a creditors voluntary liquidation or compulsory liquidation.

Company directors may contact the team at HBG advisory to discuss the options if unable to repay your bbl.

Potential risks of closing a limited company with a BBL

Company directors face three significant risks when closing a limited company with a bounce back loan. 

In order of no preference: –

  • You guaranteed other debts of the business, i.e. financial borrowings, not including the bounce back loan, and the lender collecting the money via the personal guarantee they hold.
  • You acted in a way, not per your legal obligations (wrongful trading) as a company director in the period leading up to insolvency, examples being: –
    • Trading while insolvent knowingly
    • Carrying out undervalued transactions 
    • Financial misfeasance.
  • The bbl monies have been used for your benefit, not the companies. Bounce Back Loan Fraud implication.

Not closing your company when insolvent, as fearful of the ramifications of wrongly using the bounce back loan leading to further issues. So, robust professional advice remains essential as soon as possible. Please contact us.

So do you need to speak to somebody?

If your company struggles with debt, squeezed cash flow, or an uncertain future, you remain far from alone. We support company directors daily and provide robust, honest advice and help with bounce nack loan issues.

Call the HBG Advisory team on 0330 056 3120.

You cannot repay your BBL.Will Bounce Back Loans Be Written Off?

To help support UK businesses  with cash flow affected by the COVID-19 pandemic, the UK government issued government-backed loans up to £50,000 to companies through the BBL scheme. 

BBLs included:

  • A low fixed interest rate at 2.5% after one year.
  • BBL required government-backed security to the bank, meaning no personal guarantees, 
  • deferred repayments for the first 12 months. 

However, many companies who borrowed through the BBL scheme remain difficult as repayments become due.

Many companies will have taken out BBLs with the best intentions of repaying them. However, the ongoing restrictions on the UK continue to impact the economy with no quick fix. 

Is it possible to write off my BBL?

What options can you adopt if your company cannot pay the bounce back loan? Notably, though, BBLs remain secured by the UK government. However, the company remains responsible for repaying the loan unless the company fails. 

This does not mean the BBL remains written off if you advise your bank you remain not in a position to repay. A BBL will only be ‘written off if the company remains insolvent and enters formal liquidation (Creditors Voluntary Liquidation or Compulsory Liquidation). However, merely struggling to pay repayments does not qualify for your loan to be written off.

Are options available if you cannot repay your BBL?

The UK government has foreseen the issues companies may encounter in repaying their BBL. A Pay As You Grow (PAYG) scheme exists to soften the burden moving forward through the COVID-19 pandemic.

As part of the “Winter Economy Plan, the PAYG scheme exists, helping companies who have started to repay their BBL, but now experience difficulty with repayments. 

So three lifelines exist through the PAYG scheme:

  1. BBLs can extend up to ten rather than six years, with the interest rate fixed at 2.5%. Extending the loan term reduces monthly payments while paying more interest charges.
  2. A six-month payment holiday remains on offer, meaning no repayments will be due during this time. Companies can take this option once over the loan term.
  3. Borrowers can choose to pay just the interest on their loan for six months. Therefore, it will lower the monthly repayment amount for those months. The company can take this option three times over the loan term.

While these options provide additional time and breathing space during months of financial difficulty, the BBL will continue to run. However, the company will still be responsible for repaying the borrowed amount.

Bounce back loan declarations falsely made.

Suppose businesses cannot repay their bounce-back loans. In that case, an insolvency practitioner will review your declarations at the application stage, and the appointed liquidator will carefully consider your actions.

During the application process, business owners officially declared COVID-19 was the cause of the adverse impact their business faced. Before 2020, the company was “financially viable”. However, incorrectly answering exposes company directors to personal liability for the loan post-liquidation.

Insolvency practitioners remain obliged to investigate bounce back loan fraud as part of their appointment.

Company insolvency, liquidation, and BBLs

Suppose your company’s debt problems have increased, so you believe it may be insolvent. Therefore, you may contemplate whether to commence liquidating your company. To help with this decision. Consider the solvency of your company  by –

  • Are its liabilities (or debts) more significant than its assets? 
  • Can it meet its outgoings as and when they fall due for payment?

If the company remains beyond rescue? Then consider bounce back loan support from the team at HBG Advisory.

Voluntary liquidation ensures the business remains closed legally, so creditors, employees, and customers remain fairly treated.

The liquidation process requires all company assets to be identified and sold, and proceeds then used to repay creditors. According to the order of preference, debt remains written off unless secured personally.

As the government secured bounce back loans, company directors did not provide a personal guarantee. So, if the company cannot repay the loan due to insolvency, the banks seek repayment from the UK government, not the company directors.

Can You Write Off A BBL and strike off my limited company?

Opting to “Strike off” remains an informal way to close a company no longer required. The strike-off process requires you to submit a DS01 form, which requests the company’s name be removed from the register held at Companies House. Subject to no objections? The strike-off processiremains a quick and cheap way to close a company. 

“strike of your company” remains intended as a closure option for solvent companies. If your company has outstanding creditors, your application will fail. Therefore, having a BBL and planning to strike off your company remains impossible. As the UK government has given security to banks if companies remain unable to repay their BBLs, they remain to make it difficult for a company with an outstanding BBL to close. The UK government has requested banks formally object to any company with an outstanding BBL which attempts to have their company closed through the strike-off process. 

If you have a BBL you cannot repay, strike off remains not an option. However, the company’s closure requires a formal liquidation process by a licensed insolvency practitioner, as found in HBG Advisory. 

What Measures can you Take to Avoid Personal Liability for BBLs?

The Bounce Back Loan Scheme introduced in May 2020 helped small UK businesses affected by the COVID-19 pandemic struggle to pay their debts as and when they fall due. (A primary sign of insolvency). However, even despite additional funding, many companies fail.

Notably, a BBL does not stop directors from considering liquidation. However, significantly improper use of the BBL can cause concerns for a liquidator appointed. As part of their process, they:

  • repay the company’s debts from the sale of assets; 
  • Write off any remaining debt;
  • The insolvency practitioner will investigate how company directors managed the company as part of their duty;
  • If company directors fulfil their director duties and responsibilities  and the Bounce Back Loan was correctly applied, not claimed incorrectly, company directors should be safe from further action.

Where can I receive advice on my BBL?

Should you experience issues repaying your BBL or envisage having problems keeping up with the repayments in the future, you should prioritise seeking specialist help and advice.

You can schedule a free no-obligation meeting with an HBG Advisory licensed insolvency practitioner at your convenience, assuring you of confidentiality. 

The team at HBG Advisory will listen to your financial pressures and provide realistic solutions. 

Call the team at HBG Advisory today on 0330 056 3120 for further support on whether will bounce loans be written off?

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