Can I Liquidate a Company with a Bounce Back Loan (BBL)?

If you’re a business owner who took out a Bounce Back Loan during COVID-19 to support your company, you may now be considering liquidation and wondering if it’s possible.

The straightforward answer is yes. If your business took a Bounce Back Loan, you can still close it via liquidation. The BBL is considered regular debt, so it doesn’t stop you from doing this.

In this article, we’ll explore this topic in more detail, giving clear advice to business owners dealing with this situation.

The goal is to provide clarity so you can make an informed decision about whether liquidation is the right path forward for your company and situation.

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, meaning 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.

If there are not enough assets to repay all of the company’s creditors, the Bounce Back Loan will be written off. This means that the government will repay the loan to the lender.

The Process of Liquidating a Company with a Bounce Back Loan: A Step-by-Step Guide

Here’s a clear step-by-step guide to the the process of liquidating a company with a Bounce Back Loan (BBL):

1. Evaluate the Company’s Financial Position

• Assess all assets, liabilities, and the terms of the Bounce Back Loan.
• Confirm that voluntary liquidation is the appropriate option for the company.

2. Consult with an Insolvency Practitioner

• Engage with a licensed insolvency practitioner to gain insights into the implications of the BBL during liquidation.
• Ensure you understand all relevant laws and regulations.

3. Appoint the Insolvency Practitioner

• Formalise the appointment of the insolvency practitioner to oversee the entire liquidation process, including handling the BBL.

4. Conduct Asset Liquidation

• Collaborate with the insolvency practitioner to sell company assets to pay off creditors, including the BBL.

5. Distribute Remaining Assets

• Work with the insolvency practitioner to distribute any remaining assets to shareholders, as per legal requirements.

6. Finalise Legal Requirements

• The insolvency practitioner will take care of all statutory paperwork, including final accounts and necessary filings with Companies House.
• Ensure the company’s books are closed and its legal existence terminated.

7. Close the Company

• With the assistance of the insolvency practitioner, complete all remaining tasks to officially close the company.
• Confirm that all specific terms related to the BBL and liquidation have been fulfilled.

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No Laws Prevent Liquidation with Bounce Back Loan

If you’re considering liquidating a company that has a Bounce Back Loan, you may be wondering if there are any special laws or regulations that prevent closing down with this type of government loan.

The short answer is no.

Liquidation is a standard business closure process and can proceed as normal, even with a BBL. The Insolvency Act, which governs UK insolvency law, does not single out Bounce Back Loans for special treatment.

The same liquidation procedures apply and the BBL is handled as an unsecured claim on the company’s assets. The lender has no special mechanism to block the liquidation or recover their debt.

What Happens to a Bounce Back Loan if Company Goes Bust?

So what happens to the loan if the company goes bankrupt?

The liquidator can write off all company debts during the liquidation process unless they have been personally guaranteed.

Directors are, therefore free to start another company, look for another job, or assume a future directorship, assuming no corporate misfeasance has been discovered.

Close an Insolvent Limited Company With a Bounce Back Loan

As the director of an insolvent company, you need to take decisive action the moment you recognise your company’s position.

Failure to put the interests of creditors first in insolvency (as opposed to shareholders) could place you at risk of wrongful trading or fraudulent trading charges.

If you believe you are insolvent, you need to do the following:

• Take professional advice from a licensed insolvency practitioner like ourselves immediately
• Don’t pay anyone or touch the company bank accounts
• Record your actions carefully
• Don’t panic or put your head in the sand; simply take clear, decisive action, and we’ll help you through it as best we can

Could I be Held Personally Liable if I Don’t Pay Back the Bounce Back Loan?

For directors working under the limited company structure you are protected, by the nature of the company structure, from corporate insolvency.

This means you have ‘limited liability’ from any debt, unless you have signed what is called a ‘personal guarantee.’

In the case of Bounce Back Loans the same rules apply. One of the key factors of this type of finance was that the Government did not enforce personal guarantees or any form of security. As such, the government simply becomes an unsecured creditor when it comes to the pecking order of creditors waiting to be paid from an insolvent company.

If Your Business was Already in Difficulty

There is one important caveat to this which is that all of the bounce-back applications contained a clause asking directors to confirm whether or not ‘on 31 December 2019’ the business was already in difficulty.

This clause was added to make directors aware that bounce-back loans were not simply free money which could be used by companies already insolvent but were there to offer genuine support for struggling businesses.

Insolvency practitioners are asked to investigate, while putting a company into liquidation, whether the bounce-back loan has been used for the intended reasons or the money has been simply siphoned off for personal gain.

While HMRC has not clarified what consequences will come of this behaviour, they ask that liquidators report suspicious cases to them, and they have provided a specific web address.

Directors should therefore be aware, and if you’re concerned about this, we recommend you contact us as soon as possible for an informal discussion about your situation. We can explain your options and whether your actions fall outside the intended use of the bounce-back loan. 

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.

Voluntary Administration

• 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.

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 support – https://www.gov.uk/government/news/insolvency-service-takes-action-against-businesses-abusing-covid-19-financial-support