Can I Liquidate a Company with a Bounce Back Loan?
Over £21bn was borrowed by UK businesses during 2020 as part of the Bounce Back Loan Scheme. This specialist type of COVID-19 funding was intended to prevent mass insolvencies during one of the toughest times in British economic history.
But what happens if you need to liquidate your company, despite having taken a bounce back loan from HMRC.
In this article, we’ll explain your options.
Does a Bounce Back Loan Prevent Me from Liquidating my Company?
The short answer is you can still liquidate your company.
Bounce Back Loans are classed as ‘unsecured debt’ in insolvency, which means the lender has to wait in line to be paid by the insolvency practitioner who is running the liquidation.
In a usual case, banks and other financial providers have a ‘first lien’ or secured charge over particular assets when it comes to lending significant sums of money. One of the USP’s of the Bounce Back Loan is that this wasn’t the case: lenders were guaranteed their money by the British government meaning they didn’t need to enforce their usual security.
As a company director this means you won’t risk losing personal assets, as would be the case by a typical bank loan secured with a personal guarantee.
If your company is insolvent and owes money to creditors we suggest you make contact with is immediately to discuss your options.
Closed 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 or fraudulent trading charges.
If you believe you are insolvent you need to do the following:
- take professional advice from someone 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 liabiliy’ 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.
By this reckoning, concerns about defaulting on a CBILS (Bounce Back) Loan should not deter your from liquidating, if that’s the place your company has reached. Liquidation will mean an end to all debt, and the responsibility for the Bounce Back Loan will disappear with the limited company once the liquidation process is complete.