What Directors Need To Know About Bounce Back Loans

If the company cannot repay the bounce back loan then it is in effect insolvent.  You can either start a creditors voluntary liquidation or wait for the bank to petition the court to wind up the company.  So, there is nothing stopping you putting your company into liquidation if it has a bounce back loan. What is a Bounce Back Loan (BBL)? The Bounce Back Loan was offered by the Government during the Coronavirus pandemic to help businesses get back on track, and gain access to emergency finance quickly. The loans were interest free for the first 12 months and are 100% Government backed for lenders.  In addition, you did not have to personally guarantee the loan.Remember, a bounce back loan is a LOAN. As with any debt you should know that ignoring it does not make it go away. It just makes the problem worse. So, try to not bury your head in the sand. So always follow the agreed terms. And if any doubts, talk to your provider.However, be aware that the consequences of defaulting on a BBL are less severe than if the loan was backed up with a personal guarantee. What Happens If You Can't Pay The BBL Back? Defaulting on your Bounce Back Loan is a clear warning sign of company insolvency. When this happens, creditors (anyone owed money) become a priority, and the directors have to act in their best interests. If you fail to make the loan repayments then expect action to be taken by the lender in order recover the debt. What happens to the BBL in liquidation? Liquidation is a quick way to close the company, it involves ceasing to trade and turning all assets into cash by ‘liquidating’ them. This money is then used to pay back creditors. There are two types of insolvent liquidation:Creditors voluntary Liquidation - which is started by the directors. Compulsory Liquidation - which is started by creditors via a court procedure and overseen by the official receiver.On entering liquidation, any bounce back loan becomes an unsecured debt i.e. the loan is not secured against any company assets. Unsecured creditors normally receive nothing in liquidation.  So for this reason the Bounce Back Loan is guaranteed 100% by the government. The British Business Bank, that has overseen these loans, has made it very clear that they expect the banks to pursue these debts in the normal way.  Only if the business becomes insolvent will the bank be be able to claim from the government. Can I Be Made Personally Liable For The Company Debts? Initially, the answer is no. But, there are some caveats to this.If you use the BBL funds for anything not financially beneficial for the company then you may be held personally liable. So, the funds can be used to pay wages, by supplies, settle bills BUT if you, as the director, are found to take advantage and use the funds to pay personal loans off or invest in property etc, then you may be liable. When the company becomes insolvent the licensed insolvency practitioner has the role of investigating the directors’ actions – which includes seeing how the BBL was used.  If it is deemed that the money has been “stolen” from the company then they will pursue the director for this.BBL funds can be used to refinance existing company debt, but you must use it wisely. If you choose to favour some creditors over others then this brings risk of making preferential payments which can be reversed by a liquidator for upto 20 years after the payment was made.So, you can liquidate your company with a bounce back loan.However, if you have a Bounce Back Loan do not try and dissolve the company! All the banks receive a notice from Companies House if you try and they will object. So, you either have to liquidate the company voluntarily or wait for the bank to apply through the court (risky, stressful and will take a long time)If you would like to liquidate your company, call us on 0800 9700539 or you can fill out a form on our www.liquidatemycompany.com website and get a quote in minutes. We can talk you through the process, organise the legal paperwork and begin proceedings.

Bounce Back Loans were aimed at smaller businesses and directors would not be personally liable for the debt. However, if the loans were used inappropriately then they could be held liable.

Directors may worry that they may not be able to pay back CBILS loans that have been granted to their companies during the pandemic. We discuss that here. But, first of all it is important to know what the loan was intended for and the conditions attached, so we begin with a loan overview. Coronavirus Business Interruption Loan Scheme (CBILS): This scheme provided facilities of up to £5m for small to medium enterprises who experienced cashflow issues as a result of the pandemic. Through the Coronavirus Large Business Interruption Loan Scheme which followed the initial CBILS, up to £50m is offered (£200m as of 26 May) for firms with revenues between £45m and £500m.CBILS were available for most business finance products such as;term loans, overdrafts, invoice finance asset finance.The scheme provided the lender with a government-backed guarantee potentially enabling a ‘no’ credit decision from a lender to become a ‘yes’. CBILS: Key FeaturesUp to £5m facility repayable over a period of up to 6 years (SMES) or £50m (£200m as of 26 May) for larger businesses 80% guarantee to the Lender Interest and fees paid by Government for 12 months Overdrafts and Invoice Finance for 3 years Security: At the discretion of the lender, the scheme may be used for unsecured lending for facilities of £250,000 and under. For facilities above £250,000, the lender must establish a lack or absence of security prior to businesses using CBILS. If the lender can offer finance on normal commercial terms without the need to make use of the scheme, they will do so. When borrowing up to £250,000, a personal guarantee is not required Companies taking out these loans are 100% liable for the debt and there are no restrictions on the interest rates banks charge A term extension beyond 6 years, up to a maximum of 10 years for existing CBILS facilities can be made in connection with the provision of forbearance relating to the facility, at the discretion of the lender if within its usual forbearance policies.Who was eligible for this loan? Smaller businesses from all sectors could apply for the full amount of the facility. To be eligible for a facility under CBILS, the SME must:Be UK-based in its business activity, with annual turnover of up to £45m (or up to £500m to be eligible for the Coronavirus Larger Business Interruption Loan Scheme) Have a borrowing proposal which, were it not for the current pandemic, would be considered viable by the lender, and for which the lender believes the provision of finance will enable the business to trade out of any short-to-medium term difficulty. Previously businesses which were classed as ‘undertakings in difficulty’ were unable to access CBILS because of EU rules. Now businesses in this category and which have fewer than 50 employees and a turnover of less than £9 million can apply to CBILS.Applications for CBILS loans closed on the 31st March 2021.  They have been superseded by the Recovery Loan Scheme What could the company use the CBILS loans for? You could use the loans to pay staff wages (directors included). It could also be used to help with rents and business rates, any monthly business costs or overheads such as phone and electricity bills. Finally, directors may have wished to use it to refinance other business debts to lower the interest costs related.CBILS loans could not be used to pay dividends or to pay into a personal savings account to accrue interest. It could not be used for any purposes other than those business related. To do so would not be “acting reasonably and responsibly” and you could be made personally liable if the company enters into voluntary or compulsory liquidation. What if we KNOW we can’t pay back CBILS loans? It has been reported that almost half of the emergency loans which the Government has provided during this pandemic, may never be repaid, which would cause a £26bn bill to the UK Treasury.Advice from us, as a company rescue firm, is this: DO NOT run down the CBILS cash until there is nothing left to pay creditors, wages or to cover the cost of a liquidation.  Same applies for Bounce Back Loans as well.We are aware that may non-viable companies have taken out these loans. In fact, the government loosened the criteria for these loans so that companies marked by lenders as "undertakings in difficulty" could apply for these loans. So ultimately, if your company is unable to pay back this emergency loan, it is not too much of a problem, if you have acted “reasonably and responsibly as a company director”. The government are aware and this was expected. But perhaps one thing that was not expected was how long the period of the COVID crisis would be!Companies that took out this loan and thought that after a few months of severe effects of the pandemic, it would be possible to start repaying the amount are now stuck. The issue of being unable to repay the loan is building up.Remember that if you are unable to pay back this emergency loan, then you risk your credit rating being affected at the bank which can limit your attractiveness to future lenders.CBILS loans in excess of £250,000 are often backed up by directors’ personal guarantees so unfortunately there will not be a way out of that. On the other hand, for loans below the value of £250,000 you may be held personally liable and the ‘’veil of incorporation’’ may be lifted on the limited company if you have acted unreasonably.If you are in a hole then the usual advice is to stop digging! Do not run away from the issue nor make it worse. Face reality and assess the likelihood…your business may well be insolvent. Check out our pages, complete the insolvency tests and read our warning signs – do these apply or sound familiar? The most important thing if you find yourself in this situation is to ACT. Especially given that the factors involved here, personal guarantees, insolvency, liabilities. So, reach out and get professional assistance today! Can I Just Dissolve The Company? No you cannot!  The Insolvency Service is to be given powers to investigate directors of companies that have been dissolved as set out in the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill. This will close a legal loophole and act as a strong deterrent against the misuse of the dissolution process.Extension of the power to investigate also includes the relevant sanctions such as disqualification from acting as a company director for up to 15 years. These powers will be exercised by the Insolvency Service on behalf of the Business Secretary.The measures included in the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill are retrospective and will enable the Insolvency Service to also tackle Directors who have inappropriately wound-up companies that have benefited from Bounce Back Loans.