Can I Close or Liquidate my Business if I Have a Bounce Back Loan?
Yes, it is possible to close a company with a Bounce Back Loan via the process of company liquidation.
Creditors’ voluntary liquidation is the formal process of closing an insolvent limited company with the help of a licensed insolvency practitioner. It typically involves selling the assets of the company to pay off any outstanding debts and repay creditors what they’re owed. Even if there are no assets, closing the company ends all debts, and this includes an outstanding bounce back loan.
We’ll explain exactly how that works in the following article, aiming to give you as much practical advice as you need.
- Can I Liquidate a Limited Company with a Bounce Back Loan?
- How do you Close a Company with an Unpaid Bounce-back loan?
- What happens to a Bounce Back Loan when a company is insolvent?
- What’s the Responsibility of IP’s to Report on Bounce Back Loan Usage When Closing a Company Via Liquidation?
- What are the Risks of closing a company with a bounce-back Loan?
- Alternative Options to Liquidation for Directors of Companies with BBLs
- FAQs: Closing or Liquidating a Company with a Bounce Back Loan
Can I Liquidate a Limited Company with a Bounce Back Loan?
Yes, even a company with a Bounce Back Loan can be liquidated in the normal manner. Bounce Back Loans are unsecured debts, which means no personal guarantee documents were insisted upon at the point of signing. This means that directors are not personally liable for the loan if the company is liquidated.
During liquidation, a company’s assets are sold to repay its creditors. The Bounce Back Loan will be treated as an unsecured debt, meaning that the lender will be repaid after all of the company’s secured creditors have been paid.
What if there aren’t any assets or funds to pay for a liquidation?
If there are not enough assets to repay all of the company’s creditors, the Bounce Back Loan will still be written off. This means that the government will repay the loan to the lender.
How do you Close a Company with an Unpaid Bounce-back loan?
Here’s how to close a business with a Bounce Back Loan:
- 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.
- 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.
- 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.
- 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.
- Consequences of Defaulting: Since bounce-back loans require 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.
What happens to a Bounce Back Loan when a company is insolvent?
When a limited company with a Bounce Back Loan becomes insolvent and is liquidated, the loan is treated as a company debt and is likely to be written off as part of the liquidation process.
Directors and shareholders are not personally liable for these debts due to the limited liability structure of the company unless it’s discovered that the loan was used fraudulently. As such, the process must be handled by a licensed insolvency practitioner who manages the company’s closure and deals with creditors.
If you’re insolvent – meaning you cannot pay debts when due – you should contact an insolvency practitioner such as ourselves to discuss your options. You can test your insolvency status immediately using our free insolvency test tool. It takes just two minutes.
What’s the Responsibility of IP’s to Report on Bounce Back Loan Usage When Closing a Company Via Liquidation?
IPs are responsible for investigating and reporting any suspected fraudulent use of Bounce Back Loans (BBL) when closing a company via liquidation. If they find evidence of misuse, they must report it to the appropriate authorities, potentially leading to legal actions against those involved.
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.
Alternative Options to Liquidation for Directors of Companies with BBLs
As a director of a struggling company with a Bounce Back Loan, you have a few options to consider beyond immediately proceeding to liquidation:
Attempt to Trade Out of Insolvency
- Implement a turnaround plan to return the company to profitability so you can continue trading and repay the BBL. Requires careful cash flow management and professional advice.
Seek Compromise with Creditors
- Negotiate extended repayment terms or reduced balances with creditors, including the BBL lender. Allows breathing room to recover.
- Appoint an administrator to try and sell the viable parts of the business/assets while repaying some creditors. BBL would likely get minimal repayment.
Company Voluntary Arrangement (CVA)
- Come to a binding repayment agreement with creditors through a CVA. Could involve discounted repayment of BBL.
These options aim to avoid liquidation and the associated consequences. However, success is not guaranteed. Professional advice is vital when deciding the best path forward for your company.
The key is acting quickly while options remain to try and save your business rather than delaying decisions. This is especially prudent if you wish to avoid liquidating a company with a BBL attached.
FAQs: Closing or Liquidating a Company with a Bounce Back Loan
What Happens to Directors During the Liquidation of a Company with an Unpaid Bounce Back Loan?
Directors could potentially be held liable if they are found to have acted irresponsibly or fraudulently, especially if the loan funds were used for non-business-related purposes.
What Steps Are Involved in the Company Liquidation Process with a Bounce Back Loan?
The process generally starts with a resolution for liquidation and involves notifying creditors, including the lender of the Bounce Back Loan. Assets are sold to pay off debts, and remaining debts may be written off depending on the liquidation type.
What Are the Risks of Closing a Company with an Unsettled Bounce Back Loan?
Risks include potential legal action against the company or its directors, damage to credit ratings, and the possibility of being held personally liable for the debt.
Can I Transfer an Unpaid Bounce Back Loan to Another Company During Liquidation?
Generally, transferring a Bounce Back Loan to another company is not allowed without explicit consent from the lender. Violating this term may result in legal implications.
What is the Legal Process for Closing a Company with a Bounce Back Loan?
The legal process often involves a series of administrative and procedural steps including the involvement of an insolvency practitioner, notification to creditors, and liquidation of assets to pay off the debt.
What Documentation is Required to Close a Company with an Unpaid Bounce Back Loan?
You’ll likely need financial statements, loan agreements, and a list of creditors, among other documents. These will be reviewed during the liquidation process, usually by an insolvency practitioner.
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.
- 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
- Insolvency Service takes action against businesses abusing COVID-19 financial support – https://www.gov.uk/government/news/insolvency-service-takes-action-against-businesses-abusing-covid-19-financial-support