Can I close or liquidate my company with a Bounce Back Loan?

Can I close my company with an unpaid Bounce Back Loan?

It is possible to close a company when it has an unpaid Bounce Back Loan, however, care must be taken to ensure this is done in the correct way. If the company is insolvent - meaning it cannot pay its debts and other liabilities as and when they fall due - then the only way to formally close the business is via liquidation. 

When a company goes into liquidation but has an unpaid Bounce Back Loan, directors will not be held personally responsible for repaying the amount which remains outstanding after the liquidation. It is therefore possible to write off a Bounce Back Loan if your company becomes insolvent and has no other option but to close.

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Can directors be held liable for Bounce Back Loans during liquidation?

Bounce Back Loans had a number of favourable terms attached to them, one of which was the government security given to the banks which meant no personal guarantee had to be signed by the director of a company taking out a Bounce Back Loan.  

Due to this, directors will not be held liable for the remaining balance of a Bounce Back Loan should their company be liquidated. The exception to this is if it can be proven that the Bounce Back Loan was obtained or used fraudulently.

If the Bounce Back Loan was used correctly - that is for business purposes - then the director will not be liable or responsible for covering any shortfall following liquidation of the company.

How to close a company with a Bounce Back Loan

With strike off ruled out, companies with a bounce back loan which cannot be repaid must instead close the business using a formal liquidation process. For insolvent companies, this is achieved through a Creditors’ Voluntary Liquidation (CVL).

A CVL allows for an insolvent company to be closed in an orderly manner under the professional guidance of a licensed insolvency practitioner. It is a director-initiated process which ensures all outstanding creditors of an insolvent company are treated fairly and in accordance with the Insolvency Act 1986.

As the director of an insolvent company, you have a number of duties and responsibilities; one of these is ensuring you place the interests of your creditors above those of yourself, your fellow shareholders, and your company. Your conduct as a director will be considered as part of any subsequent investigation, and should it be discovered that you failed in your duties, you could face the possibility of being made liable for the debts of your company, or even face disqualification from acting as a director for up to 15 years.

By being proactive and enlisting the help and advice of a licensed insolvency practitioner once you know your company is unable to repay its bounce back loan or any other borrowing it may have, you are demonstrating your desire to prioritise creditor interests.

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Liquidating your company with a Bounce Back Loan

It is possible to liquidate a company even if there is a Bounce Back Loan which remains outstanding. If you have already fallen behind on your bounce back loan repayments, or believe you will struggle to repay the loan in the future, you should make it a priority to seek the guidance of a licensed insolvency practitioner as soon as possible. An insolvency practitioner will be able to conduct an independent assessment of your company, its finances, and its likely future viability, before recommending the best course of action. This may be liquidation, or alternatively, the company may be able to be rescued through a process of restructuring or by initiating negotiations with creditors.

Can I Strike Off my company with a Bounce Back Loan?

Striking off a company - also known as dissolving a company - is an informal way of closing down an unwanted business and having its name removed from the register held at Companies House. Strike off is designed as an easy and affordable way of closing down a business which has neither assets nor liabilities, rather than for companies which are classed as insolvent. Insolvent companies need to go down the route of formal liquidation in order to ensure creditors are treated fairly.

With billions of pounds tied up in bounce back loans, the government is urging banks to formally object to any strike off application made by a company with an outstanding bounce back loan. An objection to a strike off application would prevent the company from being formally closed down using this method. This makes strike off a very slim possibility for companies holding an outstanding a bounce back loan.

Can I transfer a Bounce Back Loan to another company?

It is not possible to transfer a Bounce Back Loan to another company. The loan must remain with the original company that borrowed the money until the loan is either paid back in full, or the company enters a formal insolvency process - such as liquidation - which brings the company to an end. 

For further help and advice with an outstanding Bounce Back Loan, or to arrange a consultation with a licensed insolvency practitioner, call our expert team today.