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While these immediate loans proved to be a lifeline to many businesses who were unable to operate as normal, companies now face having to factor in monthly repayments towards the Bounce Back Loan even though trade may not have returned to pre-pandemic levels meaning their cashflow is still a cause for concern.

Who is liable for the debt if a Bounce Back Loan cannot be repaid?

Bounce Back Loans came with many appealing benefits, one of which was that the UK Government provided 100% security to the lending banks. This meant that no personal guarantee had to be given by the company directors or shareholders.

Although this may not mean much while the loan is being repaid as planned, should the borrowing company become insolvent, this Government security is extremely valuable. Because the loan is backed by the Government instead of a director personal guarantee, if the company finds itself in financial difficulties and subsequently enters an insolvent liquidation process, the responsibility for repaying the Bounce Back Loan will fall to the Government rather than the company director.

If a company cannot afford to repay the Bounce Back Loan, the directors will only be held personally responsible for repaying the money if it can be proven they have misused the Bounce Back Loan funds.

Misuse of Bounce Back Loan funds

Bounce Back Loans were not designed for any one purpose but instead were offered to companies to use in any way that would provide ‘an economic benefit’ to the business during the coronavirus pandemic. This could include, bolstering its cashflow position, buying new machinery, replenishing stock, or paying staff wages.

As long as the money was spent in a way directly related to the business and its operations, it is unlikely you will be accused of misusing the funds. However, if the money was used to fund personal purchases, company directors could be personally liable for the outstanding amount if the business is not in a position to keep up with the agreed monthly repayments.

If there is any doubt as to whether Bounce Back Loan funds may have been spent in a way they were not intended, you should seek the advice of a licensed insolvency practitioner as a matter of urgency. They will be able to assess the position and advise whether personal liability for the Bounce Back Loan is something to be concerned about.

Frequently asked questions about repaying Bounce Back Loans

The Bounce Back Loan cannot be paid immediately but I think the company has a future

If you are currently unable to pay the Bounce Back Loan monthly repayments, it does not mean the company is beyond rescue. There are several business rescue and recovery strategies that could help strengthen the cash position.

For those owing money to HMRC, a Time to Pay (TTP) arrangement may be able to be negotiated. A TTP arrangement functions as a payment plan between the business and HMRC, where the company promises to pay all the taxes that are owed, and HMRC gives them additional time to do this. TTPs typically run for up to 12 months and must be set at a level which is affordable and maintainable for the business. Alternatively, a formal insolvency process may be better suited if debts are more sizable and owed to a variety of creditors.

If a company is experiencing threats of legal action, placing the company into administration could provide the time and breathing space needed while a way forward is planned. For those with mounting debts, a Company Voluntary Arrangement (CVA) allows them to consolidate their liabilities into one legally-binding payment plan which will see all included debts cleared within a determined period – typically three to five years. Both administration and CVAs can only be entered into under the guidance of a licensed insolvency practitioner.

The Bounce Back Loan cannot be repaid, can the business be closed?

A business with an outstanding Bounce Back Loan can be closed. When it comes to liquidation, a Bounce Back Loan is not treated any differently to any other unsecured loan a business may have. This means that if the company becomes insolvent and needs to be wound up, the remaining balance of the Bounce Back Loan will be included in the process.

The voluntary liquidation of an insolvent company by way of a Creditors’ Voluntary Liquidation – or CVL – is handled by a licensed insolvency practitioner. They have a number of duties during the process, and one of these is to identify company assets before distributing the proceeds of these to outstanding creditors.

In the case of an insolvent company, the value of creditors will outweigh the value of available assets. As a result, any debt which cannot be repaid will be written off when the company is formally and officially closed at Companies House.

Unless this borrowing has been secured with a director’s personal guarantee, the insolvent company’s directors/shareholders will not be asked or expected to repay any shortfall.

Need help with your Bounce Back Loan problems?

If a company has missed a Bounce Back Loan payment, or you feel it may be in danger of doing so in the future, seeking expert help and advice should be a priority. There are a number of ways a financially distressed company can be turned around, however, taking this action at an early stage is vital in increasing the chances of success.

At TaxAssist Accountants we work with a number of specialist partners including Begbies Traynor to help business owners explore the available options should they face financial challenges. For more information on this topic please call Begbies Traynor on 0800 056 0444 or email us at [email protected].

Date published 1 Sep 2021 | Last updated 6 Sep 2021


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