Know your options if your company cannot pay its Bounce Back Loan
Many company directors have now reached one year since taking out their Bounce Back Loan and unfortunately, business owners are now experiencing further pressure with rising operating costs due to the war in Ukraine and higher taxes and inflation here at home.
If you are struggling to keep up with your companies’ Bounce Back Loan repayments, HMRC debts or utility bills, schedule a call back from an advisor at a time that suits you. Advice is completely free and confidential. We are here to help. We will have a qualified and FCA regulated insolvency advisor talk through your options with regards to any outstanding Bounce Back Loan or Overdrawn Directors Loan Account as well as being able to advise you on how to handle all negotiations with creditors.
So, can I be held personally liable if I don’t pay back my Bounce Back Loan?
No. (and yes if).
Let’s explain. In this particular situation the Government provided the banks with 100% security for the money they lent for the Bounce Back Loan Scheme. This means that if a company cannot pay back the Bounce Back Loan, the bank will turn to the government for repayment rather than the company director themselves. The point to note here is that for the bank to make a claim from the Government under the Government guarantee scheme, your company needs to be insolvent. If your company remains solvent then it is your responsibility as the director to continue to make payments against your Bounce Back Loan.
(The and yes if bit)
There is also a further consideration in that if your company has an Overdrawn Directors Loan Account (DLA), then it will be flagged during the liquidation process. These directors loans are loans from your company to yourself as the director and are scrutinized to ensure directors have not simply used the Bounce Back Loan funds for their own personal use e.g. to buy themselves a car or a boat etc.
This is where many directors are finding they need help and advice. The ramifications of using the Bounce Back Loan funds for personal use and then trying to close down your company is where you cross over into personal liability. Any outstanding directors’ loans will need to be explained and then negotiated and presented to creditors in a way that does not constitute a breach of your duties as director. Our advisors can help you with this and explain what directors duties you need to undertake so as not become personally liable.
How do I know if I have misused Bounce Back Loan funds?
The Bounce Back Loan scheme was introduced by the UK Government to help as many businesses as possible during the pandemic and as such the rules associated with the loan were very simplistic. It was to be used to provide an economic benefit to the business. This could be anything from equipment and premises to software or advertising. It could be used to help cover staff wages and pretty much anything that helped keep the business alive and prospering.
The main stipulation from the Government was that the loan was not to be used for personal use. This is where the personal liability comes in as mentioned above. As long as the loan was used for and within the business there will be no issues. If however, some has been drawn out and used personally then this is where you will need to seek professional advice to ensure you avoid being in breach of your duties as a director and are not held personally liable.
Directors who have deliberately taken a bounce back loan and then withdrawn all the funds for themselves and are now trying to close their company need to be very careful here and seek professional advice as soon as possible. There are numerous cases now being prosecuted via criminal courts. took a £25,000 Bounce Back Loan and then dissolved the company the next day was sentenced to 15 months imprisonment, suspended for 18 months. He was able to pay the loan back in full and that was probably one of the main reasons he managed to stay out of jail.
If you have any doubts or questions in relation to your company or Bounce Back Loan, simply book a call with one of our advisors and we will have an advisor look over your situation and explain what actions you will need to take to fix your situation. It is completely free and confidential.
Can I close my company via Strike-off with a Bounce Back Loan?
Companies still holding an outstanding Bounce Back Loan will find it almost impossible to close with a formal strike off. Upcoming legislation means that any companies who try to use the strike-off method of closure may face investigation from the Insolvency Service. Banks are being urged by government groups to formally object against any application for voluntary striking-off. Other methods, as mentioned above, should be explored if you need to close your business and it still has an outstanding Bounce Back Loan.
Will Bounce Back Loans be written off?
Bounce Back Loans cannot be written off while your company is still active and trading. The only way your Bounce Back Loan can be written off is if the company becomes insolvent and subsequently enters an Insolvency Process. (See below).
Can I close my business with a Bounce Back Loan?
Yes. Bounce back Loans are loans just like any other the company may have. As long as your company is deemed insolvent then it can use a formal liquidation procedure.
There are two options with regards to liquidating your limited company. The first is to do nothing and let your creditors force the company into liquidation. This is less desirable as you will have little control over the proceeding which will involve a court order and can be a lengthy process.
The second is that you get ahead of the situation and perform what is called a Creditors Voluntary Liquidation (CVL). This way you proactively appoint a licensed Insolvency Practitioner who then takes over your company and deals with everything on your behalf. They will engage and negotiate with creditors on your behalf, identify company assets and sell these in order to pay off creditors according to a set hierarchy.
As long as you have not set up any personal guarantee loans then all debts which cannot be fulfilled from the liquidation of company assets will be written off, including your Bounce Back Loan.
I cannot afford my Bounce back Loan payments. Can I reduce the monthly repayments?
The Pay As You Grow (PAYG) options were set up for businesses who have taken out a bounce back loan and are struggling to repay the full amount. Pay As You Grow options will be available to you once you start to repay your Bounce Back Loan, from 12 months after it was first drawn down.
Under the scheme, businesses can extend the loan term from six years to ten years, Pay nothing for 6 months (once) or pay interest-only payments for six months (3 times). You can take each of these option one after the other.
The aim of the PAYG scheme is to help businesses bounce back from the coronavirus pandemic by giving them more time to repay their loans.
What happens if I default on my Bounce Back Loan and I can’t pay?
The PAYG scheme has been very successful in giving struggling businesses more time to find their feet but unfortunately many companies have now run into new problems which were unforeseen when directors originally took out their Bounce Back Loans.
For many directors, the Bounce Back Loan is just one of several loans or financial agreements the company is dealing with. Rising rent & rates, fuel and operating costs are strangling many small businesses and we can expect these tighter financial conditions to continue throughout 2023.
If you think you will not be able to meet your BBL payments then contact us and we will have an advisor talk you through your options. The sooner you act, the more options you have open to you.
What are my options if my company is solvent but I am struggling to repay my Bounce Back Loan?
If your business is currently solvent but is struggling to pay back your Bounce Back Loan or keep up with other debts such as HMRC corporation tax, VAT or mounting utility bills, then you may want to look at restructuring or refinancing.
Arrangements can be put in place in what is called Time to Pay (TTP) whereby creditors like HMRC will set up a payment plan or give you more time to pay over the next year. Alternatively there is a formal process called a Company Voluntary Arrangement (CVA) which engages a licenced Insolvency Practitioner to negotiate with your creditors on your behalf and enter into a multi-year repayment plan normally for a reduced settlement. As part of a CVL it would be necessary to show that the company will be in a position to make good on the agreed plan for the duration of the repayments.
If your business is facing any kind of financial difficulty it is imperative that you as the director contact us as early as possible. This not only ensures you are fulfilling your legal obligations as the director but you will get FREE and confidential advice that will allow you to overcome any hurdles before they crystallize and walk away from the situation with a result that is in the best interests of you, your company and all creditors.
What is a Bounce Back Loan and how does it work?
If you were a small business owner struggling to stay afloat during the COVID-19 pandemic, the government introduced the Bounce Back Loan scheme to provide assistance to small businesses in the form of low-interest loans. Here’s everything you need to know about how the scheme works.
The first thing to note is that the loans were only available to businesses that were operational on the 1st of March 2020 and had been adversely affected by the pandemic. If you met the criteria, you could apply for a loan of up to 25% of your business’ annual turnover, up to a maximum of £50,000. The loans are 100% government-backed and come with a relatively low interest rate of 2.5%. Repayments were deferred for 12 months, and after that, you have up to ten years to repay the loan in full.
Get in touch with LBR
Need to close your company? Schedule a callback directly from one of our advisors.