Can you close a business with an outstanding bounce back loan?

In summary, yes, although as with any business closure, you should think things through and probably get experienced advice. Bounce back loans are not being written off by the banks involved although there are no special rules about closing a business with an outstanding bounce back loan. On the face of it, you will not be personally liable for a bounce back loan for your limited company.

In general terms, there can be significant personal financial and other consequences when closing any limited company, if you have taken on personal liability (by giving a personal guarantee) or acted unlawfully after you knew or ought to have known your company was insolvent .

If you’re thinking you can close your company having used a bounce back loan for your personal benefit and think that by closing the company and liquidating it, this is a way of avoiding HMRC or other scrutiny, you are very probably making a major mistake.

We are highly experienced small business advisors and Insolvency Practitioners. We would be happy to talk to you, strictly confidentially, about any issue or concern you have about closing your company and the Bounce Back scheme. Please do call or email.

If you took out a Bounce Back  loan with the hope of your company surviving the pandemic, used the money for legitimate company related reasons, only to realise your business is now insolvent, there are no extra penalties, rules or laws. Find our below what you should do

Read on to find out how this works, the process, and any potential consequences.

What happens to a Bounce Back Loan after company is insolvent?

If you have a limited company, all debts of the business, including bounce back loans, that the business cannot pay in full or part, after assets and liabilities are calculated, will ultimately  be cancelled if the business is insolvent. Limited companies offer this protection to directors and shareholders because of their ‘limited liability‘ structure..

If you’re 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.

Possible risks of closing a company with a bounce back loan

There are 3 main risks to directors personally when closing a company with a bounce back loan. 2 of these are no different whether your business took out a bounce back loan or not. They are :

  • You personally guaranteed other debts of the business i.e borrowings other than the bounce back loan. If the company is insolvent, the lender who has the benefit of the personal guarantee may seek to enforce.
  • In the period leading up to insolvency, you acted in a way inconsistent with your legal duties, such as trading while insolvent, transactions at an undervalue or some form of financial misfeasance.
  • You clearly used the bounce back loan monies for your own benefit rather than the company or misrepresented or fraudulently obtained the bounce back loan.

Ironically, not closing your company, even though it is insolvent, because you fear the consequences of having wrongly used the bounce back loan, may well create other problems for you. So, it’s important to get good, experienced advice as soon as possible. Please do get in contact with us.

How do I Close a Company Down Which has a Bounce Back?

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.

Strike it Off

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 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.

Put simply, 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, 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.


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.

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