As the COVID-19 crisis deepens, many directors are discovering that bounce back loans haven’t proved enough for the long term survival of their business.
As the prospect of insolvency looms, the question arises if a company can be dissolved with a bounce back loan.
It’s a logical line of enquiry if you’re concerned about the potential costs of liquidation, and you’re seeking a cheaper alternative to closing the company permanently.
In this article, we’ll explore this question, and the implications for directors.
Can You Close a Limited Company with a Bounce Back Loan?
Of course any company can be closed, but the question is how to do this legally and with awareness of your statutory responsibilities.
From a legal perspective, bounce back loans are a debt like any other. They different from conventional business loans in that they don’t require a personal guarantee, but while this means the lender won’t be able to repossess your house it doesn’t change anything else.
If you’ve realised the company is no longer viable and you want to close it down, that’s understandable. But you’ll now need to proceed in the correct way and, when you have a limited company with debt, this doesn’t mean dissolving or striking off.
That option is reserved for limited companies which have no debt, and which simply need to be struck off the register at companies house.
For companies with debt, voluntary liquidation is the correct legal option.
What Happens if You Dissolve a Limited Company with a Bounce Back Loan?
If you try to simply strike off your company, despite an existing debt, you will receive a letter known as the ‘Objection to Company Strike Off Notice’.
These letters are an indication that show that Companies House has picked up on the fact that debts remain and your chosen course of action is being questioned.
These objections are commonly triggered by HMRC who has an officer working closely with Companies House to monitor directors attempting to avoid tax liabilities via company dissolution.
In the case of the bounce back loan, objections are likely come from the finance provider to whom the Bounce Back is owed. Despite HMRC’s guarantee of these loans, the responsibility for chasing defaults remains with the banks who have been asked to use their normal debt enforcement protocols.
Of course any strike off action by directors must conform with the statutory requirements to inform creditors also. As per this government site: ‘If your company has creditors, members, employees etc, you should inform all the necessary people before applying.‘
Can HMRC Reinstate a Dissolved Company?
HMRC can indeed reisntate a company if it’s been struck off incorrectly, and this can happen at any period in the future.
For directors thinking that perhaps a strike off might provide a quick solution, there will be continuous uncertainty ahead, rather than a line in the sand, unless you address the debts before attempting to dissolve.
The law pertaining to this can be found in Section 1003 (6) of the Companies Act which states that, even if struck off, “The liability (if any) of every director, managing officer and member of the company continues and may be enforced as if the company had not been dissolved.”
What’s the Correct Way to Close a Limited Company with a Bounce Back Loan Debt?
If you wish to close a company, and you took a Bounce Back Loan, it is still possible to eradicate the debt and close the limited company.
With a voluntary liquidation, a licensed insolvency practitioner deals with the company creditors, sells any assets to pay debts and finally strikes the company off as part of the process.
If you’re concerned that you may not have funds, it might be possible to apply for directors redundancy payments which are offered by HMRC as long as you’ve been trading for 2 years.
Read our full article on directors redundancy and find out if you’re eligible here.