What happens to Bounce Back Loans when a company goes bust

Bounce Back Loans were one of the most popular emergency finance options for businesses affected by the pandemic due to no repayments or interest to pay for 12 months and a low fixed interest rate of 2.5%. A key feature of the scheme was the government’s guarantee to repay lenders 100% of outstanding loan amounts if their borrower went bust. 

It is worth bearing in mind, however, that the guarantee only applies to lenders and borrowing businesses continue to be fully liable for repayment. 

Some directors have used an unofficial method of closing their company only intended for solvent businesses known as strike-off, which is why legislation has been introduced to limit the way in which businesses can close down if they owe tax or are running an outstanding Bounce Back Loan. This effectively extends the penalties already in place when companies undergo formal liquidation and when directors are found to have committed some form of wrongdoing.

When a company closes down it may be eligible to do so in an unofficial manner via a process known as voluntary strike-off or company dissolution. Directors who initiate voluntary strike-off must inform all creditors of their intention, and crucially, the business must be solvent. This form of business closure has provided a method that’s been incorrectly used by some directors – in other words, closing a business down when it has gone bust.

The government is keen to make the procedure less accessible and directors are now subject to investigation by the Insolvency Service if they use voluntary dissolution when an outstanding Bounce Back Loan is in place. Banks are also being encouraged to object to applications for strike-off by companies with unpaid loans. 

If your company is unable to repay its Bounce Back Loan and the business cannot be saved, you should seek professional advice immediately. 

Creditors’ Voluntary Liquidation enables you to meet your legal obligations and reduce the chances of wrongful trading or misconduct accusations that could lead to sanctions. Penalties for misdemeanours by company directors can be punitive and include personal liability for business debts. Another possibility is disqualification, which could extend for up to 15 years.

If your business has concerns about paying back a Bounce Back Loan, contact the friendly and knowledgeable team at SW&A on 01905 622202.

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