“Could not Paying a Bounce Back Loan Cost Me the Family Home”?
If you’re a limited company director who took a bounce back loan (BBL) during the COVID-19 pandemic, you may now be realising you can’t pay it back. But if your company defaults on the loan, what are the repercussions, and could you lose your house?
The good news is, losing your house is highly unlikely, as we explain in detail below.
Bounce Back’s Required no Security on Assets
While most loans require the signing of personal guarantee documents assigning collateral, often a family house, as security for the loan, this was not the case with Bounce Back Loans.
The goverment themselves acted as loan security meaning that, in the event of default, they would pay back the finance companies who offered the BBL’s.
However, this doesn’t mean you can simply not pay back the bounce back loan.
What Happens if you Default on a Bounce Back Loan?
While the lenders can’t force you to sell your house, or another personal asset, they can exert pressure your limited company.
The government has suggested the loan providers who offered bounce back loans utlise their normal debt collection and enforcement methodologies which may include:
- demand letters
- debt collection
- Where banks consider fraud may have been committed then they are likely to issue CIFAS markers (CIFAS stands for ‘Credit Industry Fraud Avoidance System) These effectively block individuals from obtaining credit for up to six years. Banks do not notify customers that such action has been taken
- Objection to Company Strike off
Is the Company Insolvent if We Can’t Pay the Bounce Back?
If you have a debt that you can’t pay, (or where corporate liabilities exceed assets), your company is insolvent.
The key factor here for directors is that, as the director if an insolvent company, your responsibilities shift towards creditors. This means you must only take actions that benefit creditors, without prioritising any creditor in particular.
You can’t pay staff, therefore, or one supplier over another. This is called acting ‘in preference’ and could hold you liable to charges of wrongful trading further down the line.
In fact, if you’re insolvent you need to take professional advice. Speaking with a professional doesn’t mean you have to liquidate the company, it simply means gaining clarity about the best way forward. This could mean rescuing the business or, if you’re unlikely to return to profitability, closing it down.