Bounce Back Loans were launched in March 2020, at the outset of the coronavirus crisis, to provide numerous businesses with access to cash of up to £50,000 on exceptionally favorable conditions to assist them in dealing with the pandemic.
While these immediate loans proved to be a lifeline for many businesses that were unable to operate normally, companies now face the prospect of having to factor in monthly repayments towards the Bounce Back Loan even though trade may not have returned to pre-pandemic levels, implying that their cashflow is still a source of concern.
Who is responsible for the debt if a Bounce Back Loan is not repaid?
Bounce Back Loans had several tempting features, one of which was that the UK government offered lending institutions with 100 percent security. This meant that neither the company’s directors nor its stockholders had to provide a personal guarantee.
Although this may not seem significant while the loan is being serviced in full, if the borrowing firm becomes bankrupt, this Government security is enormously valuable. Because the loan is guaranteed by the government rather than a director personal guarantee, if the business runs into financial problems and goes into insolvent liquidation, the duty for repaying the Bounce Back Loan falls to the government rather than the company director.
If a firm is unable to repay the Bounce Back Loan, the directors will only be held personally liable if it can be demonstrated that they misappropriated the Bounce Back Loan funds.
Misapplication of Bounce Back Loan monies
Bounce Back Loans were not established for a specific purpose, but were instead made available to businesses for use in any manner that would bring ‘an economic advantage’ to the company during the coronavirus epidemic. This might involve improving its cashflow situation, purchasing new equipment, replacing stock, or paying employees’ salary.
It is unlikely that you would be accused of abusing the funds if the money was spent in a manner that was directly relevant to the firm and its activities. However, if the funds were used to support personal expenditures, company directors may be personally accountable for the remaining amount if the company is unable to meet the agreed-upon monthly installments.
If you have any doubts about whether Bounce Back Loan money were used in an unintended manner, you should seek the opinion of a certified insolvency practitioner as soon as possible. They will be able to examine the situation and advise on whether personal responsibility for the Bounce Back Loan is an issue.
Questions and Answers regarding Repaying Bounce Back Loans
The Bounce Back Loan cannot be paid in full right now, but I believe the firm has a future.
If you are now unable to make your monthly Bounce Back Loan payments, this does not indicate that the firm is doomed. There are a number of company rescue and recovery solutions that might assist to improve the financial situation.
A Time to Pay (TTP) agreement may be agreed for persons who owe money to HMRC. A TTP agreement is a payment plan between the business and HMRC in which the firm commits to pay all taxes owing and HMRC provides them more time to do so. TTPs normally last up to a year and must be established at a level that is both cheap and sustainable for the firm. A formal insolvency procedure, on the other hand, may be more suited if obligations are larger and owing to a multitude of creditors.
If a firm is facing legal action, putting the company into administration may offer the time and breathing room required while a strategy for the future is developed. A Company Voluntary Arrangement (CVA) enables those with increasing debts to combine their obligations into a single legally enforceable payment plan that will see all included debts repaid within a certain period of time – often three to five years. Administration and CVAs may only be undertaken with the assistance of a qualified insolvency practitioner.
Can the company be closed if the Bounce Back Loan is not repaid?
A company that has an outstanding Bounce Back Loan might be closed. When it comes to liquidation, a Bounce Back Debt is viewed the same as any other unsecured loan a company may have. This implies that if the firm goes bankrupt and must be liquidated, the outstanding amount of the Bounce Back Loan will be included in the liquidation process.
A professional insolvency practitioner handles the voluntary liquidation of an insolvent firm via a Creditors’ Voluntary Liquidation – or CVL. During the process, one of their responsibilities is to identify firm assets and distribute the money to outstanding creditors.
The value of creditors will surpass the value of accessible assets in the event of a bankrupt corporation. As a consequence, when the business is properly and officially liquidated at Companies House, any debt that cannot be repaid will be wiped off.
Unless this borrowing is backed by a director’s personal guarantee, the directors/shareholders of the bankrupt firm will not be sought or expected to reimburse any deficit.