The Bounce Back Loan Scheme (BBL), now closed for applications, was intended to offer a lifeline to the British business community during the COVID-19 pandemic. But what if you took the loan with the hope of surviving the pandemic, only to realise it wasn’t enough. Can you close a business which has a bounce back and write it off?
Read on to find out how this works, the process, and any potential consequences.
Closing a Business with Bounce Back Loan Debt
If you have a limited company, all debts – including bounce back loans – can be written off if the business is insolvent. Limited companies offer this protection to directors by dint of their ‘limited liability‘ structure.
If you’re official insolvent – meaning you cannot pay debts when due – you should make contact with an insolvency practitioner such as ourselves to discuss your options. The law requires liquidation to be carried out by a licensed insolvency practitioner who will liaise with creditors and go through the formal process of closing the company down.
If you are a sole trader the situation is more complicated since there is no legal distinction between your own money and the company’s. Therefore, you have no way of writing off thi debt without going into personal bankruptcy.
Closing a Company Down
The correct method for closing a company down will depend upon what situation your company is in. But if you can’t pay your bounce back, there is a clear indication for liquidation, as we explain below.
Dissolving the Company
Some directors have asked whether they can simply dissolve a company with a bounce back loan. Simple striking a limited company off the Companies House register is sometimes been attempted as a kind of shortcut to properly liquidating the company, in the hope that it will somehow slip under HMRC’s radar and disappear. Even in a normal scenario HMRC makes it explicity clear that you cannot dissolve a company with debt. In the case of bounce back loans, however, the Insolvency Service has been given more powers to clamp down on Bounce Back Loan misuse, with the power to ban offenders from being a company director for at least 15 years.
No matter how tempting this kind of option, our best recommendation is that you look the situation squarely in the face and liquidate the company with the help of an insolvency practitioner. This way you can close the company properly and put the debts to rest with a clear mind.
Liquidating a company means the end of your corporate debts. And since bounce back back loans didn’t require a personal guarantee, the chances are that liquidation will mean the debt gets written off.
To begin with the liquidation process, you must make contact with an insolvency practitioner who will take over contact with creditors on your behalf. Your powers as a director will cease and your role will be to cooperate with the liqidator as he or she winds up the affairs of your company, with the intention of finding the best possible return for creditors.
As part of the process, the insolvency practiioner is required to investigate the actions of directors in the period preceding insolvency. This is to check for any evidence of directorial misfeasance such as wrongful trading. Assuming the company was run responsibly, this is a straightforward part of the process and the company is closed, and then struck off the register at companies house.
If I Closed my Company Already can I Still be Chased for Bounce Back Loan Repayment?
If you’ve already closed the company, and have concerns about HMRC investigating the dissolution to ensure it was done correctly, you’ll need to give us a call to ascertain any potential liability.