The impact of BBLS and CBILS in Insolvency
In response to the COVID-19 pandemic, in late March and April 2020 the Government announced the introduction of the Bounce Back Loan Scheme (BBLS) and Coronavirus Business Interruption Loan Scheme (CBILS).
The purpose of the schemes was to provide timely financial support to businesses affected by the COVID-19 outbreak with government-backed lending; interest free for the first 12 months.
Since the schemes were introduced a total of 1,514,605 BBLS and CBILS applications have been approved, with in excess of £63.18 billion loaned (as at 13 December 2020).
When a company or individual who has received a BBLS or CBILS loan enters into insolvency proceedings these loans will be a creditor of their estate.
For loans under £250,000 no security or personal guarantee was required and therefore these will be strictly unsecured creditors, ranking behind preferential, HMRC (in respect of their secondary preferential) and secured creditors (subject to any prescribed part, in Corporate Insolvency).
For loans over £250,000 security or a personal guarantee might have been sought by the lender and therefore Directors may require independent advice on their own personal position. The lender’s position may also be improved in a corporate insolvency scenario should their loan be backed by security, particularly if there are fixed assets.
Insolvency Practitioners have also been tasked with scrutinising the use of the loans and whether they were properly applied for. The purpose of the loans was to support business expenditure and as such Directors may be held personally liable dependent on the outcome of the Insolvency Practitioner’s investigations.
If Directors/individuals or their advisors are looking to seek further advice in relation to this topic, or their financial position generally, please contact our office.