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Reviewed by
Chris Andersen
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Reviewed by Chris Andersen

Chris became an Insolvency Practitioner in 2014 and is currently regulated by the IPA.

He is experienced in contentious insolvency with excellent analytical skills and strong knowledge of both general and technical insolvency matters.

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4th December 2023

If your company defaults on a bounce back loan, could you be held personally liable?

While the terms for these loans were purposefully set to be supportive to directors – hence no personal guarantees – there are certain circumstances in which personal liability might become an issue.

We answer this question in some detail below.

Contents
  1. What is the Bounce Back Loan Scheme (BBLS)?
  2. Who is liable for a Bounce Back Loan?
  3. Can you be personally liable for a Bounce Back Loan?
  4. Under what circumstances would a director be made liable for a Bounce Back Loan?

What is the Bounce Back Loan Scheme (BBLS)?

The Bounce Back Loan Scheme (BBLS) was introduced by the government following complaints that the Coronavirus Business Interruption Loan Scheme (CBILS) was not getting support to the businesses that needed it quickly enough.

Whether the BBLS has been successful in that aim is a matter for debate, but it has given small businesses access to more than £14bn since it was launched on 4 May 2020. 

Under the scheme, businesses can borrow up to 25% of their turnover up to a maximum of £50,000. The loans are interest free and are 100% guaranteed by the UK government. However, these attractive terms have led to rumours that some company directors have been misusing the loans. If they have and their business fails, they risk being made personally liable to repay the loan.

Bounce Back Loan Scheme

Who is liable for a Bounce Back Loan?

The liability for a Bounce Back Loan rests solely with the business that takes out the loan. This means the company is responsible for repaying the loan according to the terms agreed upon with the lender. If the business is unable to repay, the government’s guarantee covers the lender’s losses, but this does not absolve the business of its obligations. It’s important to note that in the case of sole traders or partnerships, the individuals themselves may be personally liable for the debt, as these business structures do not offer the same limited liability protection as a limited company.

Can you be personally liable for a Bounce Back Loan?

Yes, personal liability for a Bounce Back Loan can arise in certain circumstances. For sole traders and partnerships, the individuals involved are personally liable for the loan, as these business structures do not provide limited liability protection. This means that in the event of non-repayment, personal assets may be at risk.

In the case of limited companies and limited liability partnerships, the liability is generally limited to the business. However, personal liability could still occur if there is evidence of fraudulent activity or misrepresentation when obtaining or using the loan. Directors should exercise due diligence and comply with all relevant laws and regulations to avoid personal liability.

Under what circumstances would a director be made liable for a Bounce Back Loan?

A director of a limited company can be made personally liable for a Bounce Back Loan under specific circumstances, primarily related to misconduct or fraudulent activities. These circumstances include:

  1. Fraudulent Application: If a director knowingly provides false information or misrepresents the company’s situation to obtain the loan, they can be held personally liable.
  2. Misuse of Funds: Using the loan for purposes other than those intended for the business, such as personal expenses, can result in personal liability.
  3. Breach of Fiduciary Duty: Directors are expected to act in the best interests of the company. If they fail in this duty, especially in a way that leads to the company’s inability to repay the loan, they could be held liable.
  4. Wrongful or Fraudulent Trading: Continuing to operate the business and incurring debts when the company is insolvent, or doing so with the intent to defraud creditors, can lead to personal liability.
  5. Dissolution of Company to Avoid Repayment: If a director attempts to dissolve the company to avoid loan repayment, they can be personally liable, especially if this action is deemed fraudulent.

Directors should ensure compliance with legal obligations and proper use of Bounce Back Loans to avoid the risk of personal liability. Legal advice is recommended in complex situations.

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 Frud 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