What Happens To Bounce Back Loans If A Company Closes?
In the wake of the unprecedented economic challenge posed by the COVID-19 pandemic, the UK government introduced financial aid for businesses in the form of Bounce Back Loans. While these loans undoubtedly provided a lifeline to companies struggling to navigate the complex business landscape, not all have been able to repay their loan and survive.
Failure to pay back a Bounce Back Loan is a clear indicator of insolvency. Though most businesses should and will consider an extension as a first step, many are left with little option other than the possibility of closure. It is possible to liquidate a company with a Bounce Back Loan but this is not a decision that should be taken lightly and you must understand the implications before entering into a formal insolvency process.
Liquidating A Company With A Bounce Back Loan
If a company is insolvent and cannot repay its Bounce Back Loan, liquidation is likely to be a suitable next step. In most cases, the most suitable type of liquidation in this scenario is Creditors Voluntary Liquidation (CVL) as this ensures that creditors get a fair outcome and the company is wound up quickly and efficiently.
When the CVL process begins, Bounce Back Loans become unsecured debt. Unsecured debts are paid last during the insolvency process, with secured and preferential creditors coming first. This means that it is unlikely that a Bounce Back Loan will be repaid in full when a company is closed in this way. The lender must then request full repayment from the government, rather than from company directors.
Are Directors Personally Liable For Bounce Back Loan Debt?
One of the advantages of Bounce Back Loans is that they were guaranteed by the UK government. Though this can give directors some degree of peace of mind as they should not be held personally liable for Bounce Back Loan debt, directors should take the time to understand their roles and rights in this situation.
Companies liquidating with Bounce Back Loan debt undergo the same scrutiny as those liquidating in other circumstances. As part of the formal insolvency process, a licensed insolvency practitioner will always investigate the financial conduct of company directors and assess whether there is any evidence of financial wrongdoing. With respect to Bounce Back Loans, examples of this may include evidence that a director used the loan to settle personal debts or made preferential payments to creditors with the funds. In circumstances like these, directors will be held personally liable for Bounce Back Loan debt.
Can You Transfer A Bounce Back Loan To Another Business?
It is also important to understand whether you can transfer a Bounce Back Loan to another business. In most cases, directors can operate a similar level role at another company after liquidation, but they will not be able to transfer the Bounce Back Loan to this company. All Bounce Back Loan debt must be settled with the company that originally took it out and therefore, in the case of company closure, the debt will be settled through the insolvency process.
Get Advice
If you have exhausted all means of repaying your Bounce Back Loan or are heading towards insolvency-forced closure with outstanding Bounce Back Loan debt, it’s essential that you seek expert advice as soon as possible. The friendly professionals here at My Liquidation can talk you through your options and liabilities to ensure that your company is closed in the most effective way possible. Simply get in touch with the team today to discuss your situation with us.
