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Personal liability for Bounce Back Loans
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Am I personally liable for my Bounce Back Loan?
Directors are not personally liable for Bounce Back Loans taken out by their company. Instead, the government provided security to the banks in the event of non-repayment of a Bounce Back Loan. The exception to this rule, however, is if you have misused Bounce Back Loan funds; if this is the case, you may be held personally liable for the balance of the loan.
While Bounce Back Loans were a lifeline to many companies when they were first taken out, many directors are now finding their company is unable to keep up with the repayments. What does this mean for directors and are they personally liable for repaying the remaining Bounce Back Loan balance?
In the vast majority of cases, directors do not have any personal liability for repaying an outstanding Bounce Back Loan if their company is unable to do so. One of the main benefits of the Bounce Back Loan scheme was that directors were not required to give a personal guarantee to secure the borrowing. Instead the government provided security for 100% of the loan amount to the banks.
This means that if a company took out a Bounce Back Loan and later became insolvent, the government would step in and repay the loan to the bank on the company's behalf. This frees the director of any personal liability or responsibility for any unpaid Bounce Back Loan amount.
There is, however, an exception to this rule.
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There is a way for a director to become personally liable for repaying some or all of the remaining Bounce Back Loan amount, and this is when there is evidence of the Bounce Back Loan being used or obtained fraudulently.
While Bounce Back Loans were able to be used for a range of different purposes, from refinancing existing debt, purchasing stock, through to paying landlords and suppliers, the terms of the loan did stipulate that the money could only be used in a way which directly served the company's interests.
Bounce Back Loans were not for personal use. If a Bounce Back Loan was obtained and the money used to fund personal purchases which were of no benefit or relevance to the business, directors may find themselves being accused of fraudulently using their Bounce Back Loan. One of the ramifications of this is the director becoming personally liable for repaying the Bounce Back Loan.
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It is important to note here that personal liability for a Bounce Back Loan due to fraudulent use is only possible if the company becomes unable to keep up with the repayments due, becomes insolvent, and closes down.
If the company becomes insolvent and subsequently enters a formal insolvency procedure, such as Creditors’ Voluntary Liquidation, the appointed liquidator is duty bound to conduct an investigation into the conduct at the directors in the time leading upto the company becoming insolvent. If evidence is found that the directors deliberately withdrew Bounce Back Loan funds for personal use, rather than using this money to benefit the company, directors can then be held responsible for repaying the shortfall.
If the directors have used Bounce Back Loan funds for personal reasons, but the company continues to trade and the monthly repayments towards the loan are made in full and on time, then the company will continue to assume the responsibility for repayment and the directors will not become personally liable while this remains the case.
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If you are struggling to repay your Bounce Back Loan and are worried about being held personally liable for the borrowing, you should make it a priority to speak to a licensed insolvency practitioner as a matter of urgency.
At Real Business Rescue, we have a nationwide team of insolvency practitioners here to give you the help and advice you need during times of financial and operational distress. We will take the time to understand your situation, before talking you through your options and suggesting the right course of action for you and your company.
Take the first step towards solving your Bounce Back Loan worries by contacting a member of our team today.
Further Reading on Personal liability for Bounce Back Loans
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