Closing a Limited Company with a Bounce Back Loan
While it is possible to close a company a company with Bounce Back Loan debt, it must be done in the correct way.
Some directors – in an effort to dodge debts or avoid fees – try to cut corners, leaving them personally responsible for company debts and disqualified from future directorship.
In this guide, we’ll be exploring who is liable for Bounce Back Loan debt, how to safely close a company with a Bounce Back Loan, and what alternative options are available.
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Who Is Responsible for Bounce Back Loan Debt?
Thankfully, under most circumstances, you cannot be held personally responsible for Bounce Back Loan debt. If your company fails, the government will cover the outstanding amount.
As long as you follow the correct procedure, your personal assets and finances will be safe.
However, there are some things that can result in you becoming personally liable for the debt:
As the director of an insolvent company, you have a duty to ensure that you protect the interests of your creditors. Some methods of closure neglect to deal with your debts, and can result in misfeasance charges.
In order to avoid this, you must enter into a Creditors’ Voluntary Liquidation. This will demonstrate your consideration towards creditors and ensure that all affairs are properly settled by a licensed professional. This is the only way to safely close a limited company with a bounce back loan.
Bounce back loans were provided with the aim to help struggling businesses stay afloat through the pandemic. This means they were provided to be used for business expenditure only.
Spending the money from a BBL on yourself will violate the terms of the loan and forego any protections – this will likely result in you having to repay the entire amount personally.
The government won’t cover you if you got your BBL under false pretences.
To qualify for a BBL, you must have:
- Been running a company that was actively trading
- Established the business before March 1st 2020
- Earned at least 50% of your profits via trade
- Been impacted by COVID-19
If you used your BBL to repay an overdrawn director’s loan account or a personal guarantee while ignoring other debts, it could be viewed as a preferential payment. This can result in being made personally responsible for the loan’s repayment.
Being made personally liable for the debt can be disastrous. If you’re not able to pay the amount, you may be forced to declare bankruptcy or made to enter an IVA.
How Do I Close a Company with Bounce Back Loan Debt?
If you’re looking to close an insolvent company, you need to enter a Creditors’ Voluntary Liquidation.
As the most common form of liquidation in the UK, it offers a range of benefits:
- Ensures you fulfil your directorial duties
- Minimises risk of personal liability
- Relieves pressure from creditors
- Liquidation proceeds usually cover any fees
A CVL places control of the company into the hands of a liquidator, who stops the business from trading and sells its assets in an effort to repay creditors. Any remaining debts are then written off.
Can I Strike Off a Company with Bounce Back Loan Debt?
Company strike-off does close down the company, but it doesn’t properly deal with its debts. The process simply means a company is “struck off” the Companies House register, ceasing its existence as a legal entity.
If the company is then forced into liquidation, the attempted strike-off will be viewed as an attempt to avoid repaying creditors, a violation of your directorial duty. This can result in you being made personally liable for company debts. You may also be disqualified from acting as a director for up to 15 years.
To ensure a safe exit from the company and to avoid becoming personally responsible for debts, you must pursue a voluntary liquidation.
Can I Rescue a Company with Bounce Back Loan Debt?
Insolvency doesn’t necessarily spell the end for a business; there are a range of options available to get you back to profitability.
Pay As You Grow Scheme
Introduced in September 2020, the Pay As You Grow Scheme was designed to help businesses struggling with the burden of Bounce Back Loan debt. If you’re struggling to keep up with your repayments, this should be your first port of call.
The Pay As You Grow Scheme allows you to:
- Pause repayments entirely for up to 6 months (1 time only)
- Switch to interest-free payments for 6 months (up to 3 times)
- Extend the repayment period from 6 years to 10 years
The Pay As You Grow Scheme allows you to take the pressure off your monthly overheads, with flexible repayment offers to give your business the time it needs to get back on its feet.
Company Voluntary Arrangement (CVA)
A Company Voluntary Arrangement is a formal payment plan brokered between you and your creditors. It allows you to deal with insolvency while avoiding liquidation.
A CVA offers many advantages:
- Extends repayment period by 3-5 years
- Freezes charges and interest on debts
- Protects company from closure
To enter into a CVA, you’ll need the backing of 75% of your creditors – including HMRC. They’re likely to accept a proposal as long as it demonstrates that your company will be able to keep up with the arrangement.
Our team will help you to draw up a proposal that is reasonable for you and attractive for your creditors.
Speak to an Expert
If you need to close a limited company with a Bounce Back Loan, you need to speak to an insolvency practitioner as soon as possible.
Our team can assess your situation and advise you on how to best go forward, whether that be company closure or company rescue. Early action ensures you can uphold your legal directorial duties and keeps your options open.
Get in touch today to book a free consultation.
