It is now over twelve months since applications to the Bounce Back Loan Scheme (BBLS) closed. As there were no fees or interest to pay for the first 12 months, this means that repayments are now due on all Bounce Back Loans with interest at a fixed rate of 2.5% p.a.
In addition, both HMRC and the banks are conducting investigations into potentially fraudulent BBLS applications. It is possible that entirely innocent businesses could be subject to investigation so please contact us if you require any help.
Given the other pressures currently being experienced by businesses, the requirement to pay back the BBL is likely to be another unwanted burden.
If you are struggling to repay the loan you should speak to the bank or lender to ask for an extension of the loan from 6 years to 10 years. This will help with short term cash flow.
Business owners who are now struggling to repay their Bounce Back Loan must seriously consider the implications if they cannot factor the repayments into their cashflow; they must also take into account their other ongoing commitments such as servicing other loans, tax arrears, starting repayment of business rates and settling rent arrears with their landlords. This is on top of the highest inflation level in 40 years and spiralling fuel and energy prices.
Directors and other business owners should take a critical review of their overall financial commitments. Our recommendation is that advice is sought as early as possible while options are still available.
The Companies Act is clear that once the Director becomes aware that the Company is, or is likely to become, insolvent, the principal duty is to the creditors. Great care should be exercised at that stage and directors are advised to seek early and appropriate professional advice from a reputable Licensed Insolvency Practitioner, to avoid worsening the position and potentially attracting personal liability.
Commonly asked questions from directors and accountants
These are some of the commonly asked questions on the BBLS. As always, the earlier that directors and other business owners seek advice from a Licensed Insolvency Practitioner, the more options will be available.
Is it possible to voluntarily strike off a company with an outstanding Bounce Back Loan?
No, it is no longer possible for a director to strike off the company at Companies House with an outstanding Bounce Back Loan.
The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act provides the Insolvency Service with new powers to tackle Directors who seek to dissolve their Company to avoid paying liabilities, this includes Bounce Back Loans.
The loan has to be repaid in accordance with the terms and conditions of the signed loan agreement.
If the loan agreement is not repaid when it falls due it is probable that the lender will pursue the business for repayment.
Can directors of a solvent company liquidate it with an outstanding Bounce Back Loan?
Yes, directors can close down a solvent company with an outstanding Bounce Back Loan provided that all its debts, including the BBL, are repaid in full together with statutory interest within 12 months from the start of the liquidation. This process is known as Members’ Voluntary Liquidation.
Can directors of an insolvent company liquidate the company with an outstanding Bounce Back Loan?
Yes, directors can close down an insolvent company if it cannot repay its debts in full including the Bounce Back Loan. This process is known as Creditors’ Voluntary Liquidation.
As the Bounce Back Loan is an unsecured loan of the company it will rank equally with all the other unsecured creditors of the company after secured and preferential creditors.
If the company has assets the Liquidator will realise them to maximise the return to creditors in the liquidation according to the order of priority set out in the Insolvency Rules.
What if the company genuinely cannot pay back the Bounce Back Loan?
There is no consequence for the directors as long as the money has genuinely been used wholly for business purposes.
However, if the money has been used for non-business purposes these transactions will be reviewed by the Liquidator or Administrator who may have to reclaim the money
Can lenders or the Government, who provided the security for the Bounce Bank Loan, pursue the director personally for the unpaid balance of the bounce back loan?
The simple answer is no as the BBL does not require directors to provide a personal guarantee to underwrite the borrowing. The responsibility for repaying the BBL will remain solely with the company and liability cannot be passed to directors provided they comply with their statutory and fiduciary duties as directors. This means there is no risk to a director’s personal assets should the company be unable to repay the loan.
If there has been an abuse of the process in obtaining or applying the bounce back loan, it is possible for lenders to recover funds from the directors personally.
Can a company use a Bounce Back Loan to pay off other company debts?
If the company is insolvent directors should seek independent advice from a Licensed Insolvency Practitioner and must exercise caution when using a BBL to repay other company debts.
For example, repaying a personally guaranteed debt while other unsecured creditors remain unpaid is likely to be seen as an act of misfeasance, by way of preferential payment in breach of the Insolvency Act. If proven personal liability may follow.
Can the Insolvency Service intervene?
The Insolvency Service has been given new powers to target company directors who dissolve their businesses without repaying their Bounce Back Loan.
The Insolvency Service has retrospective powers to investigate directors of live companies or those entering into formal insolvency. If wrongdoing or malpractice is found, directors can face sanctions including a ban of up to 15 years.
Extending powers to investigate directors of dissolved companies means those who have previously been able to avoid their responsibilities may also be held to account.
In Summary
If you are struggling or if you are concerned that you will not be able to repay your Bounce Back Loan, please contact our Licensed Insolvency Practitioners at Royce Peeling Green for a free, no-obligation and confidential chat.
Our Licensed Insolvency Practitioners have many years of experience in business recovery and insolvency and they can provide you with impartial advice and recommendations, entirely without obligation.
Contact us now to discuss how we can help you. Email Gareth Hunt at ghunt@rpg.co.uk or call 0161 608 0000
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