While the Coronavirus Business Interruption Loan Scheme (CBILS) Source. BRITISH BUSINESS BANK “CBILS” eased financial pressure during the lockdowns, many directors fear they will not be able to pay them back.
So what happens if you default or your company becomes insolvent?
Can you be held personal liable for CBILS finance?
Personal Liability for Coronavirus Business Interruption Loans (CBILS)
If a business were to default on a CBILS loan, or go into liquidation, could a director be pursued by the lender directly?
- For loans below £250,000 no personal guarantee was required, as with bounce back loans. As such, putting the company into liquidation should eradicate the loan entirely.
- For loans over £250,000 lenders “had the discretion” to take a personal guarantee. However, a company director’s main residence could not be used as security, although the rules do not rule out a personal asset such as a second home or commercial premises. This means there will be some personal liability, but it is capped at 20% of the total amount.
Where any recipient of CBILS – no matter what the amount – is found guilty of fraudulent trading or other malfeasance, they could be pursued, as would be the case with any company director. If the business fails, then directors also face potential investigation by the Insolvency Service, disqualification and other penalties.
Personal Guarantees for CBILS
It should be noted that the government provided a guarantee to the lender, but not the borrower – and so they remained fully liable for the loan.
For sums over £250,000, where the lender was allowed to request a personal guarantee, this was subject to the following:
- Recoveries under the guarantees must be capped at a maximum of 20% of the outstanding balance of the CBILS facility after the proceeds of business assets have been applied
- A principal private residence (PPR) could not be taken as security to support a personal guarantee or as security for a CBILS-backed facility.
What Should Directors do if they Cannot Repay CBILS?
If you feel you are headed for default, you should seek professional advice immediately. Defaulting on the loan will trigger the lenders to enact their own arrears protocols which may include debt collection, court action, and forcing your company into liquidattion via a winding up petition. If you’ve signed a personal guarantee this will be called in.
Your options will be broader if you act early and without putting your head in the sand.
Options that licensed insolvency practitioners such as ourselves can help you with include a company voluntary arrangement, which is a structured repayment plan with creditors for a percentage of the total debts. This means the business can keep trading and you won’t pay back everything you owe.
Liquidation through a creditors’ voluntary liquidation process is another route and an insolvency practitioner will be able to explain how these can work. Compulsory liquidation should be avoided – this is where the business is wound up, since this is likely to have more severe repercussions lasting far longer into the future.
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- Source. BRITISH BUSINESS BANK “CBILS”