Rishi Sunak’s Bounce Back scheme has been used by around 70,000 businesses at the last count, and the number is still growing.
While the hope is that the Bounce Back Loans will serve their purpose and allow those companies to survive a difficult period and come out intact, there will also be those which don’t make it.
This article explores the question of what happens if you can’t pay back the bounce back loan, covering implications for your company and the directors.
Do you Have to Pay Back a Bounce Back Loan?
Of course the finance providers, and HMRC itself, expect you to pay back the bounce back loan if it’s possible for you to do so.
The loan terms were generous and flexible to make the loans supportive as possible during COVID-19.
With an interest rate of only 2.5% per annum, and a loan term of 6 years, these loans were some of the best deals British businesses have seen in a long time.
So the short answer is yes, your business is 100% liable to pay this loan back.
Will Bounce Back Loans be Written Off?
For company directors facing insolvency, the question will be whether the bounce back loan will be written off along with other business debt.
The answer is yes – liquidation means an end to all business debt, as well as the company itself, of course.
Seek advice from a licensed insolvency practitioner such as ourselves if you are considering liquidation and would like to know more about the process.
Liquidating with a Bounce Back Loan
Anyone working out of the limited compay structure is automatically protected from having business debt spill over into personal finances.
Assuming there’s no corporate misfeasance or wrongful trading, you can liquidate your company and walk away from debt.
Liquidations must be carried out by a licensed insolvency practitioner and all the creditors, including the financial provider of the BBL, will be paid in order of priority from what funds the liquidator is able to realise from assets.
What Happens to the Bounce Back Loan if the Company Goes Bust?
One of the unique points about the bounce back loans is that they were all guaranteed by the government. So in the case of a company going bust, the financial provider who offered the loan will be compensated by HMRC.
For the director, the loan is simply written off, as per the normal rules of a company liquidation.
Since no personal guarantees were required for this type of loan, there should be no personal liability, barring the exceptions laid out below.
What about Personal Liability for Bounce Back Loans?
Directors who applied for bounce back loans were all asked to confirm that their companies were not insolvent at the time of taking the loan.
Assuming this was true, and the loan funds were then used legitimately for the purposes laid out by the government, there should be no chance of personal liability or other repurcussions.
However, Insolvency practitioners have a requirement to investigate the company’s position prior to insolvency. Where evidence is discovered that directors made false claims on their application, and knew the company was already insolvent, the liquidator will be required to declare to this to HM & Revenue.
It is not yet clear what repurcussions HMRC have in mind for those who have misused Bounce Back funds, we will update this page as more information becomes available.