When the government introduced the Bounce Back Loan Scheme, it offered a financial lifeline to businesses during an unprecedented period. However, as time has progressed, many company directors are facing difficulties in meeting the loan repayments. This raises a vital question for many directors: What becomes of your Bounce Back Loan if you are faced with the liquidation of your company?
In this comprehensive guide, we will explore the implications of liquidating a company with an outstanding Bounce Back Loan.
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Can I Liquidate a Limited Company with a Bounce Back Loan?
Yes, a limited company with an outstanding Bounce Back Loan can be liquidated through a process known as Creditors’ Voluntary Liquidation (CVL). This procedure is applicable to companies that are insolvent, meaning they can’t pay their debts.
In this case, the Bounce Back Loan is treated as an unsecured debt, which means it will be repaid from the proceeds of selling the company’s assets during the liquidation process, following a predetermined order for paying creditors. If there are any debts that remain unpaid after this process, they are generally written off, and the company is formally closed. The directors are then free to pursue other business ventures or employment opportunities.
The liquidation process is typically straightforward because Bounce Back Loans did not require personal guarantees from directors. However, if there were any irregularities in how the loan funds were used, these might come under scrutiny.
For example, if a liquidator’s investigation reveals that loan funds were not used for the benefit of the company, and instead for personal gains or other inappropriate purposes, there could be serious consequences. Directors found to have misused funds might be held personally liable to repay the loan and face disqualification from serving as a director for up to 15 years. This underscores the importance of how loan funds were managed prior to considering liquidation.
What Will Happen to your Bounce Back Loan if you liquidate your company?
If you liquidate your company, your Bounce Back Loan will be treated as an unsecured debt. This means that it will be repaid from the sale of the company’s assets in order of priority, after secured debts such as mortgages and bank loans have been paid off. If there are insufficient assets to repay all of the company’s debts, the Bounce Back Loan may be written off.
It is important to note that the government has guaranteed the Bounce Back Loan scheme, which means that lenders will be able to reclaim any money that they lose on Bounce Back Loans from the government.
Can you be Made Personally Liable for Bounce Back Loans during a Company Liquidation?
Yes, it is possible to be made personally liable for Bounce Back Loans during a company liquidation. This can happen if:
- You misused the Bounce Back Loan funds. For example, if you used the money to buy personal assets or to pay off personal debts.
- You failed to act in the best interests of the company and its creditors. For example, if you traded the company recklessly after you knew that it was insolvent.
- You gave preferential treatment to some creditors over others. For example, if you paid off your own debts or the debts of friendly creditors before paying off other creditors.
If the liquidator or administrator finds that you have done any of these things, they could make you personally liable for the Bounce Back Loan. This means that they could hold you personally responsible for repaying the loan, even if the company’s assets are insufficient to do so.
Will HMRC Conduct Bounce Back Loan Investigations?
Insolvency practitioners have been instructed by HMRC to report any suspicious activity they discover in the course of a liquidation to a dedicated team who will be conducting bounce back loan investigations if there is evidence of misfeasance or criminal activity. To date, HMRC has published a number of incidents publicising actions taken against offenders.
What happens if you use bounce back loan for personal use?
Government guidance makes it clear that bounce backs used for personal use must be paid back and that action could be taken to render directors personally liable if this is discovered.
What happens if my business goes bust and I have a bounce back loan?
If a business goes bust, bounce back loans can be written off as with any other debt belonging to a limited company. The loan provider then becomes a creditor and is paid from the insolvent estate, where circumstances allow.
What happens to BBL if company closes?
Closing a company via liquidation means the end of its debts, and hence BBL’s will be written off. This must be done by a licensed insolvency practitioner to ensure fair play. You cannot simply close the company yourself.