Many businesses took advantage of government-backed financial support during the pandemic, including the Coronavirus Business Interruption Loan Scheme (CBILS) Source. BRITISH BUSINESS BANK “CBILS” , as they sought to manage cash flow and the intensely difficult trading conditions. But as the rising insolvency figures show, and with more firms entering liquidation, this borrowing did not guarantee survival.
While this loan scheme may have provided temporary support, many firms have been affected by falling demand, supply chain problems, or staffing issues – whether being unable to find people or afford the cost of reemploying them after the furlough scheme ended.
But what If your limited company is now either insolvent or facing this and making the CBILS loan is impossible? If a company director has decided that the company is no longer viable and the only option is to liquidate, then you will want to know what will happen to the loan. You may be wondering if there will still be demands for payment after the business has been dissolved and there will be any personal liability.
Will my CBILS loan be Written Off During Liquidation?
This will depend on whether the loan was provided on an unsecured or secured basis. If the CBILS you took out was for under £250,000, as was often the case with smaller businesses, then a bank was required to offer these on an unsecured basis, as specified in the government guidelines.
An unsecured CBILS loan will usually be written off because it is unlikely that any funds will remain after the business assets have been sold off as part of the liquidation. This should provide some welcome closure for directors. It should also be the case that information related to the liquidation of a limited company will not appear on a personal credit file. Although the CBILS loan may be unsecured, there may well be other creditors who are higher up in terms of their priority and who will be secured and preferential creditors – this is a statutory requirement as detailed in the Insolvency Act 1986 – LEGISLATION “Insolvency Act 1986” . Be aware too that if you owe money to HMRC, this is also a preferred creditor – GOV.UK “HMRC as a Preferential Creditor” – and so will be seeking financial recompense, even if your CBILS lender is not able to.
Was your CBILS loan secured?
If the loan was for over £250,000, then lenders were able to demand a personal guarantee. However, there are limitations in terms of what can be recovered from the company director – it was not possible to take a charge on the director’s main home and it had to be limited to 20% of the debt. Therefore during the liquidation, efforts will be made by the lender to obtain this 20% and this is where the director does have personal liability.
Check the terms of your CBILS loan
It is important that a company director is aware of the status of all their business debts. They should ensure that their CBILS loan was provided subject to the provisions outlined by the government. It is possible that a loan from a bank or other lender may have been provided on other terms and directors should see if any personal guarantee is included.
What if Director Misconduct Occurred?
If a company director was responsible for continuing to trade when they were knowingly insolvent, this is known as wrongful trading. During liquidation, the insolvency practitioner is obliged to investigate if they believe director misconduct has occurred. Under these circumstances, it is possible a lender may seek to recover the debt directly from the director – and this could include via personal assets. In the case of a CBILS loan, and indeed all other debts, efforts may be made to recoup sums from the director personally. The director may be subject to investigation by the government’s Insolvency Service and also face sanctions such as fines and disqualification from running other companies.
Take Advice on Liquidation and Your CBILS loan
Liquidation must be overseen by a licensed insolvency practitioner. However, directors can benefit enormously if they take professional advice at the earliest stage possible. It is always better for liquidation to be voluntary, such as a creditors’ voluntary liquidation, rather than a compulsory winding up. This will allow them to look at whether liquidation is the only option or if they want to do all they can to ensure business survival in which case a Company’s Voluntary Arrangement or administration may be considered. With your CBILS loan, and of course, other debt, these will remain ‘live’ and would need to be repaid, even if there may be some scope to delay repayments or even renegotiate the terms. There are always many difficult decisions to be made around insolvency and a limited company – and this is why objective advice should always be taken.