Can I Liquidate A Company With A Covid Bounce Back Loan?

The bounce back loan scheme was an initiative introduced by the government to help small and medium-sized businesses affected by the pandemic to secure loans of up to £50,000. The initiative, which closed on 31st March 2021, was aimed at helping businesses that were facing losses as a result of the pandemic, to access finance quickly. Key features of the scheme included:

• Loans between £2,000 to £50,000 (maximum of up to 25% of a business’ annual turnover)
• The government guaranteed 100% of the loan
• No interest or repayments required for the first 12 months
• 2.5% interest rate (following 12 months free)
• 6 year loans with no early repayment charges

What Happens If I Cannot Repay My Covid Bounce Back Loan?

Just because Covid bounce back loans have the security of being government supported, this does not mean that business owners should treat them differently to any other loans. If a company is unable to pay back their Covid bounce back loan, this is a clear indicator that the company is insolvent. In this situation, the business is required to act in the interest of creditors. The usual chasing for repayments will be made, as is the process with any other loan. 

What Happens To My Covid Bounce Back Loan When I Enter Liquidation?

As we’ve mentioned, if a company cannot repay its bounce back loan, this is a clear sign that the business is insolvent. In this case, it may be in the best interest of creditors, directors and the business more generally to place the company into voluntary liquidation. Placing the company into Creditors Voluntary Liquidation (CVL) is the best option for removing creditor pressure quickly and winding the company up properly and in line with insolvency law regulations. Choosing not to act when you can see your company entering insolvency may result in a Winding Up Petition being issued against the company. 

When a company is entering liquidation, an unpaid Covid bounce back loan will become an unsecured debt. This means that it is low down in the order of repayment. Unsecured creditors are paid after secured creditors and preferential creditors. As Covid bounce back loans take least priority in a liquidation, it is unlikely that full repayment will be made from the liquidated business. In this instance, the lender will be able to go to the government to request repayment in full. 

Can You Be Made Personally Liable For Covid Bounce Back Loans?

Limited liability applies to Covid bounce back loans in the same way as it applies to any other outstanding debt. This protects directors from being personally liable for any debts, unless they have signed a ‘personal guarantee’. The only reason directors will be held personally liable for Covid bounce back loans is if they have used the funds to settle personal loans, for example, taking it away from the needs of the business. Equally if directors use funds from the Covid bounce back loan to make preferential payments to certain creditors, they may be held personally liable. 

For more information on how to liquidate your company with a Covid bounce back loan, please don’t hesitate to get in touch with our experienced team of insolvency professionals at My Liquidation.