Can I Liquidate My Company with a Bounce Back Loan?

If you took a Bounce Back Loan during the pandemic and your company is now struggling to repay it, you can still liquidate, and in many cases you should. The Bounce Back Loan Scheme rules do not block liquidation, and the government-backed guarantee means the lender recovers from HMG rather than pursuing the director personally, provided the loan was obtained and used lawfully.

What causes problems is waiting too long, misusing the loan funds, or choosing the wrong closure route. We see each of these patterns on first calls every week, and the cost of getting it wrong is now measured in disqualifications, not just unpaid debt.

Below we set out how a Bounce Back Loan is treated inside a liquidation, when to act, the risks of delay, and how to choose between CVL, CVA, administration and Pay As You Grow.

We also cover what a liquidator actually does with the loan once a Creditors’ Voluntary Liquidation begins. Written from our position as licensed insolvency practitioners at Company Debt, and reflecting the first-call advice we give directors in this situation.

The Quick Answer: Yes, You Can Liquidate a Company With a Bounce Back Loan

Yes, you can liquidate a company that has an outstanding Bounce Back Loan. The loan is treated like any other unsecured debt in the liquidation, ranking alongside trade creditors and behind preferential claims.

Because the loan is 100% government-backed, the lender claims the outstanding balance from HMG rather than pursuing the director, and most directors walk away with no personal exposure to the BBL itself. The catch is that you must have taken and used the loan lawfully.

If the loan was obtained on a false application or spent on personal or non-business purposes, the liquidator’s investigation will find it, and you face personal liability under Sections 212, 214, 238, or 239 of the Insolvency Act 1986.

Our advice is the same to every director: if you are worried about the BBL and the company is genuinely insolvent, do not drift. Enter a formal procedure on your own terms before HMRC or another creditor forces your hand. A well-run Creditors’ Voluntary Liquidation with a clean BBL profile is rarely a problem. A delayed process with messy records is.

How a Bounce Back Loan Is Treated in a Company Liquidation

When a company enters liquidation, the Bounce Back Loan sits in the creditor ranking as an unsecured debt. The lender (typically one of the high street banks that provided the original facility) proves in the liquidation for the outstanding balance, and receives a dividend from any asset recoveries alongside other unsecured creditors.

The unique feature of the BBL is the 100% government guarantee: if the lender does not recover the debt from the company, they call on the guarantee and HMG pays out. The effect for the director is that the BBL lender has no incentive to pursue you personally, and you are not a guarantor in the normal sense.

Our caseload is full of directors who arrived at the first call convinced they were personally liable for the BBL. They almost always are not, unless one of two things happened: they signed a personal guarantee outside the standard BBL terms (which were not supposed to require one), or the loan application contained a misrepresentation.

Everything else is standard unsecured-debt territory, and the liquidator handles it as part of the ordinary process.

When Should You Consider Liquidation?

The right time to consider liquidation is when the company is insolvent (either cash-flow or balance-sheet) and there is no realistic prospect of trading out of it. Under Section 123 of the Insolvency Act 1986, a company is insolvent when it cannot pay its debts as they fall due, or its liabilities exceed its assets.

If you are at that point and the BBL is part of the picture, liquidation becomes a proper option rather than a last resort.

What we tell directors is that the BTI v Sequana [2022] UKSC 25 decision is the key legal test. The Supreme Court confirmed that your duty to consider creditors’ interests arises when insolvency is “probable,” not just inevitable.

From that moment on, every payment and decision you make is measured against creditor interests. Continuing to trade while running up the BBL, HMRC arrears, and trade creditor balances is exactly the kind of pattern a liquidator will flag as potential wrongful trading under Section 214.

The Risks of Delay or the Wrong Closure Route

The two mistakes we see most often with BBL-era insolvencies are delay and route selection. Delay is dangerous because it extends the lookback window for clawback claims.

Preferences under Section 239 have a six-month lookback for third parties and a two-year lookback for connected parties, and transactions at undervalue under Section 238 have a two-year lookback. The longer you delay, the more the liquidator will have to examine and potentially reverse.

Route selection is equally important. Directors sometimes try to dissolve a BBL-indebted company via a voluntary strike-off under Section 1003 of the Companies Act 2006. This is not permitted when there are outstanding creditors, and the BBL lender will almost certainly object.

Worse, the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 specifically gave the Insolvency Service power to investigate dissolved companies with outstanding BBLs and pursue directors personally. Strike-off is not an escape route from a BBL, and attempting it can trigger a disqualification investigation.

Choosing the Right Company Closure Route With a Bounce Back Loan

For most insolvent companies with a BBL, the right route is a Creditors’ Voluntary Liquidation. It puts the director in control of timing and appointment, limits the lookback exposure, and gives creditors a formal process to prove claims against. Full detail on the mechanics in our guide to creditors’ voluntary liquidation.

If the company is still viable and only the BBL repayment schedule is the problem, we tell directors to look at the Pay As You Grow options before triggering any insolvency procedure. PAYG was set up by HMG specifically for BBL borrowers who could service the business but not the original repayment schedule.

It allows extension of the loan term from six to ten years, interest-only periods, or payment holidays. Calling the original lender and asking for PAYG is free, and for some companies it removes the pressure entirely without a liquidation.

If the business has some underlying value but needs restructuring, a Company Voluntary Arrangement or an administration may be a better fit than a straight liquidation. We assess all of these routes at the first consultation before recommending anything.

What Happens to a Bounce Back Loan in a Creditors’ Voluntary Liquidation

Inside a CVL, the process for a company with a BBL is straightforward. The directors instruct a licensed IP. The IP prepares a Statement of Affairs showing the company’s assets, liabilities, and creditors (including the BBL).

Shareholders pass a resolution to wind up, and a creditors’ decision procedure formally appoints the liquidator. The liquidator then realises the company’s assets, distributes the proceeds in the statutory order of priority, and dissolves the company.

What the liquidator will focus on specifically, where a BBL is involved, is whether the loan funds were used for the purposes stated in the application (i.e., to provide economic benefit to the business), and whether any payments from the loan were made to directors, connected parties, or preferred creditors.

If the answers are clean, the loan sits on the creditor list and the process proceeds normally. If the answers are not clean, the liquidator will pursue recovery from the director personally. Our role at that stage is advising the director on their position and any defence, but the cleanest outcome is always a clean record from the outset.

Your Duties as a Director During Liquidation

Once the liquidator is appointed, your duties as director shift. The liquidator takes control of the company, and your role becomes one of co-operation, disclosure, and honesty. Our guide on what happens to directors in liquidation sets out the full position once a liquidator is in place.

You must provide all company records requested, attend interviews, and answer questions about the business, the BBL, and any director payments made in the lookback period. We tell directors that the worst thing they can do at this stage is be evasive or selective with the records. A liquidator who has to work hard to get information becomes a liquidator who looks harder at everything.

You should also know that the liquidator files a report on director conduct with the Insolvency Service under the Company Directors Disqualification Act 1986. Most directors of BBL-era companies receive no follow-up action.

The ones who do are almost always the ones who misused the loan or obstructed the process. See our guide on wrongful trading for the director-liability tests the liquidator applies.

For directors with a clean BBL profile, liquidation is rarely the end of the road. Our guide on starting a new company after liquidation covers the rules on reusing a company name and trading again.

Alternatives to Liquidation: Pay As You Grow and Restructuring

Before we recommend liquidation, we always run through the alternatives with directors. Pay As You Grow is the most immediate. If the business is genuinely viable but the BBL repayment is the problem, PAYG extends the term to ten years, allows six-month interest-only periods, or permits up to two full payment holidays.

You apply directly to the original lender and the decision is usually quick. For some directors, PAYG alone removes the need for any formal procedure.

If PAYG is not enough but the business has underlying value, a CVA or an administration may restructure the debt over three to five years while keeping the company trading. These routes are more expensive than a straight CVL but can preserve jobs, goodwill, and director employment. We assess the right fit case by case at first call.

Bounce Back Loan Misuse and Enforcement Risk

The Insolvency Service has made BBL misuse a priority for investigation and enforcement. The typical patterns that attract attention are: applying for a loan larger than 25% of annual turnover (the BBL cap), spending the loan on personal costs rather than the business, using the loan to repay a director’s loan account, or applying for more than one BBL across connected companies.

Each of these can result in personal liability, disqualification under the CDDA 1986 for up to 15 years, or in extreme cases prosecution for fraud. The enforcement appetite has not softened with time; if anything, the published disqualification numbers tell us it has hardened.

Our honest view is that most directors we speak to used the loan within the rules, and have nothing to fear from a proper liquidation. The minority who did not should take legal advice urgently, because the Insolvency Service’s enforcement appetite for BBL misuse has not diminished over time.

FAQs on Liquidating a Company With a Bounce Back Loan