If you have a Bounce Back Loan and find yourself in a position where you need to close your business, you may wonder if it’s possible to do so without facing significant financial consequences. The good news is that it is possible to close a business with a Bounce Back Loan, and one option is through liquidation.

Voluntary liquidation is a formal process that involves selling the assets of the company to pay off any outstanding debts, including any loans such as a Bounce Back Loan. Even if there are no assets, closing the company ends all debts.

In this article, we will explore the process of liquidation and how it works for company directors. We will also discuss the potential implications of this process and offer some tips for making the process as smooth as possible.

By the end of this article, you will better understand the options available to you, the risks, and what steps you should take.

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.

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

If you have a limited company, all debts of the business, including bounce-back loans, that the business cannot pay will ultimately be cancelled if the business is closed due to insolvency. 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 contact 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.

You can test your insolvency status immediately using our free insolvency test tool. It takes just two minutes.

How to Close a Company With a Bounce-Back Loan?

Closing a business is never an easy decision, but it can become complicated if the business has taken out a Bounce Back Loan. Here’s how to close a business with a Bounce Back Loan:

  1. Seek Professional Advice: It’s essential to seek the advice of an insolvency practitioner (IP), such as ourselves, before closing a business with debt. You cannot legally close the company yourself; an IP will ensure fair play to all parties involved.
  2. Shareholders vote to put the company into liquidation: During a general meeting, shareholders pass what is called ‘a resolution to wind up the company and formally appoint the liquidator
  3. Creditors are Notified – Once an insolvency practitioner (acting as liquidator) takes over, they will inform creditors of what’s happening and call a meeting to explain the next steps. In the case of an outstanding bounce-back loan, the bank or financial provider will be informed, alongside the other creditors.
  4. Closing the Business: The final step in closing a business is to wind it up. This typically involves selling any remaining assets and distributing any remaining funds to the creditors in strict order of priority. Since bounce-back loans are unsecured, the financial provider becomes an unsecured creditor.
  5. Consequences of Defaulting: Since bounce-back loans required no personal guarantees or the need for security, the bounce-back loan debt ends with the company itself. There should be no consequences for directors, assuming no misfeasance or fraudulent activity occurred.
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What are the 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 benefits from the personal guarantee may seek to enforce it. » MORE See our full article on Directors Personal Guarantees in Insolvency
  • 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. » MORE See our full article on Directors’ Duties in Insolvency
  • You clearly used the bounce-back loan monies for your own benefit rather than the company’s 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 wrongly using the bounce-back loan may create other problems for you. So, getting good, experienced advice is important as soon as possible. Please do get in contact with us.

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We offer honest, transparent and no obligation advice for UK directors, usually within a few minutes. Click into the live chat, free phone 0800 074 6757 or email info@companydebt.com

We’ve helped 1000’s of directors through challenging financial circumstances.

More Reading

Read our full article on: Can I Strike Off a Company with a Bounce Back Loan?

Bounce Back Loan Fraud

Bounce Back FAQs

What happens to the bounce-back loan if the company closes?

If the company closes via liquidation, the bounce-back loan ends with the company. If the director attempts to strike off (dissolve) the company with an active bounce-back loan, the bank will object to the company strike off and potentially force the limited company into liquidation.

The cost of liquidation varies depending on the size and complexity of the company, but it’s £4000-£6000 + VAT as a general guideline for a small company. The costs can include the fees of the liquidator, legal fees, and any other costs associated with the process can usually be taken from the sale of any company assets

If you want to close the business to avoid paying the bounce-back loan, you have no choice but to liquidate the company. You cannot simply close the company yourself.

If you have a bounce-back loan and cannot repay it, you are entitled to close a limited company via liquidation, meaning you can write off the debt and formally close the business.

Article sources

All of our insolvency content is written licensed insolvency practitioners. The primary sources are listed below. Learn more about the standards we follow in our editorial guidelines here.

  1. Insolvency Practitioners are suggested to report potential cases of Bounce Back Fraud here: https://www.tax.service.gov.uk/shortforms/form/TEH_IRF?_ga=2.131819727.192362486.1597067537-679006552.1591708728
  2. Insolvency Service takes action against businesses abusing COVID-19 financial supporthttps://www.gov.uk/government/news/insolvency-service-takes-action-against-businesses-abusing-covid-19-financial-support