Bounce back loan: Implications if company is liquidated

Bounce back loan: Implications if company is liquidated

It is possible to liquidate a company if it has a bounce back loan. However, you need to understand whether you will be liable for any of the debt.

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Need help to liquidate your company? Call us (0800 180 8440) or complete the form below. The advice is free and confidential.

Can you liquidate a company if it has a bounce back loan?

The fact that your company has a bounce back loan (BBL), does not prevent you from liquidating it.

The existence of this type of loan doesn’t change the liquidation process in any way. It happens as normal.

If the company is insolvent (no longer able to pay its debts), you have an obligation to close the business. If you don’t, you could risk acting against you legal duties. This could lead to you facing disqualification as a director.

You must first appoint an Insolvency Practitioner. They will generate a statement of affairs for the company and hold a creditors meeting where the liquidator is appointed.

In most cases where small or medium sized businesses are concerned, your Insolvency Practitioner will be appointed as the liquidator. They will then carry on with the process of closing the company.

Struggling to get your head round all of this? We can help. Call us (0800 077 6180) or complete the form below. The advice is free and confidential.

What happens to the loan after company liquidation?

Bounce back loans are not secured. This means that as far as the company is concerned, they are treated the same as any other unsecured debts.

The bank who lent the money is able to lodge a claim with the liquidator for a share of the assets of the company after they are sold. However, in most cases they will get little or nothing back because there will be insufficient funds available.

That said, bounce back loans are guaranteed by the Government. As a result, if the company is closed, the lender can claim any amount unpaid from HMRC.

HMRC will review the circumstances surrounding the loan. They will want to understand the amount borrowed compared to the company’s previous turnover and how the money was spent.

If they are satisfied the size of the loan was within the rules and used for the benefit of the company, they will refund the bank.

Are you personally liable to repay a bounce back loan?

As a director, you did not give a personal guarantee to repay your company bounce back loan.

Because of this, if the business stops trading, you should not be liable to repay any of the outstanding balance personally.

However, it is important to understand that if your company is liquidated, in certain circumstances the bank itself can enforce repayment of the debt from you.

HMRC is refusing to refund banks and putting pressure on them to collect personally from directors where bounce back loans have been used inappropriately. In other words, if you used some or all of the money for personal gain rather than for the benefit of the company.

The legal argument in these circumstances is that you have in affect borrowed money from the company. As such, the debt you owe can be claimed back in the same way as an overdrawn director’s loan account. However, the onus is put on the bank to enforce collection rather than the company liquidator.

To protect yourself, you will need to be able to show that the funds were spent by the company to keep it afloat. For example to pay rent, suppliers and staff wages.

It is not always clear whether bounce back loan money has been used legitimately by the company or not. So how does the bank know whether to chase you?

A key red flag would be if you transferred all or a sizable amount of the loan into your personal account. This would suggest you then spent it yourself. Another would be if you used the funds to pay for a personal asset (such as buying yourself a new car).

Need help to liquidate your company when it has a bounce back loan? Call us (0800 180 8440) or complete the form below. It’s free and confidential.

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