In an effort to help support businesses affected by the continuing Covid-19 pandemic, the government made loans of up to £50,0000 available to all companies through the Bounce Back Loan scheme. Bounce Back Loans came with a raft of appealing features including a fixed low rate of interest, government-backed security to the bank meaning no personal guarantees were required, and no requirement to make repayments for the first 12 months. However, many companies are finding themselves in a precarious position as repayments on these loans become due.
The vast majority of these loans will have been taken out with the best of intentions of being able to repay the money owed. The problem, however, is that no one could have anticipated the restrictions on business activity running so deep and for so long. After months of enforced closure for many, and severe restrictions on meaningful trade for others, many companies are finding their cash flow depleted at a time where they will soon need to start repaying their Bounce Back Loans.
So, what can you do if your company is unable to repay its Bounce Back Loan? Although Bounce Back Loans are provided with full security from the government, however, it remains the company’s responsibility for repaying the amount borrowed. The government security will only kick in should the company be unable to pay back the loan.
This does not mean the Bounce Back Loan will be written off if you tell the bank you are not in a position to repay. A Bounce Back Loan will only be, in effect, ‘written off’ in the event of the company becoming insolvent and entering into a formal liquidation process such as a CVL. Simply struggling to make your monthly repayments will not see your loan being written off.
The government has foreseen the issues some companies will be facing in repaying these loans and have introduced a Pay As You Grow (PAYG) scheme to try and combat some of these challenges.
The PAYG scheme was introduced as part of the Winter Economy Plan and is designed to help companies who have started to repay their Bounce Back Loans but are having difficulty in meeting the monthly repayments. There are three main lifelines offered to companies through the PAYG scheme:
While these options will provide additional time and breathing space during months of financial difficulty, the Bounce Back Loan will continue to run and the company will still be responsible for repaying the full amount borrowed.
If your company’s debt problems have escalated to such as extent that you believe it may be insolvent, you may need to consider whether placing the company into liquidation would the most appropriate solution. A company is classed as insolvent when its liabilities (or debts) outweigh its assets (the things the company owns), or when the company is unable to meet its outgoings as and when they fall due.
If the company is beyond rescue, placing it into liquidation ensures the business is closed down in an orderly manner and that creditors, employees, and customers are treated fairly.
As part of the liquidation process, all assets of the company will be identified and sold, with the proceeds going towards repaying creditors as much as possible according to a set hierarchy. Any debt which remains after this process – unless secured by a personal guarantee – will be written off.
As Bounce Back Loans are secured by the government, directors did not have to provide a personal guarantee. This means that in the event of the company being unable to repay the loan due to insolvency, the responsibility for repaying the bank falls to the government rather than the director.
Strike off is an informal way of closing down a company which is no longer needed. The strike off process is achieved by submitting a DS01 form which requests that the company's name is removed from the register held at Companies House. As long as no objections are received from creditors, the strike off process is a relatively quick and inexpensive way of bringing an end to a limited company.
Strike off is designed as a closure option for solvent companies. If your company has outstanding creditors, you can expect your strike off application to be suspended. If you have an outstanding Bounce Back Loan, therefore, strike off is not a suitable method of closing your business. As the government has given security to banks in the event of company's being unable to repay their Bounce Back Loans, they are keen to make it as difficult as possible for a company with an outstanding BBL in place to close. The government has requested that banks formally object to any company with an outstanding Bounce Back Loan which attempt to have their company closed through the strike off process.
If you have a Bounce Back Loan you cannot repay, strike off is not an option. Instead, the closure of the company will need to be done through a formal liquidation process which must be administered by a licensed insolvency practitioner. Real Business Rescue can help you with this.
If you are struggling to repay your Bounce Back Loan, or you envisage having problems keeping up with the repayments in the future, you should make it a priority to seek specialist help and advice.
You can arrange a free no-obligation consultation with a Real Business Rescue insolvency practitioner where you can obtain help, advice, and guidance, across all areas of business distress. We will take the time to understand your situation and the challenges you are facing, before talking you through the options open to you, and providing you with our expert recommendation. Call our team today on 0800 644 6080.