Bounce Back Loans and Company Closures

What happens to your Bounce Back Loan if your company closes?

The Bounce Back Loan Scheme was introduced by the UK Government as part of its package of financial support for businesses facing the unprecedented challenges brought about by the coronavirus pandemic. Thousands of small and medium sized enterprises used the scheme in a bid to stay afloat amidst extensive national lockdowns and local restrictions. Sadly, for some, the Government’s intervention was not enough, and the impact of the pandemic, along with various other factors, left them with no option but to close their business. So, what happens to your Bounce Back Loan if your company closes? Do you remain liable to repay it?

Speak to us if you are concerned about closing your company with an outstanding Bounce Back Loan or have any other questions regarding your liability under the scheme. We have helped large numbers of businesses to effectively address issues arising from the financial support claimed during the pandemic and will ensure you have all the information and support required to make an informed decision about your company’s future.

If you would like to have a free confidential discussion with a member of our team, please either make a Free Request For Call Back or call us directly on 01908 414990 and we will be pleased to help you.

What was the Bounce Back Loan Scheme?

Under the bounce back loan scheme, eligible businesses could borrow up to £50,000 to help with their business expenses during the coronavirus pandemic. The loan was provided on favourable terms, at a fixed interest rate of 2.5%, to be repaid over 6 years. The funds were supplied by a network of accredited lenders including Barclays, Natwest and Santander, and were guaranteed by the Government.

According to Government statistics, as of July 2022, UK businesses had drawn some £46.6 billion through bounce back loans. Borrowers put the funds towards outgoings such as staff wages, suppliers’ invoices and commercial rent.

When does a Bounce Back Loan need to be paid back?

The funds borrowed under a bounce back loan must be repaid over a term of 6 years, with payments commencing 12 months after the company received the funds. However, many borrowers are struggling to meet their repayment obligations, which are coinciding with their attempts to rebuild their business’s profitability to pre-pandemic levels.

In response, the Government has implemented a suite of measures aimed at easing the repayment burden. The scheme, known as ‘Pay as You Grow’, includes extending the term of your loan from 6 years to 10, paying interest-only for 6 months and taking a payment holiday.

What happens to your Bounce Back Loan if your company closes?

Sadly, the impact of the coronavirus crisis on some businesses has been too severe, and their owners have been left with no choice but to cease trading. There are several routes to affect the closure of a company, but some are only available when the company is solvent. If you are unable to repay your Bounce Back Loan, chances are that this is indicative of deeper financial difficulties. In these cases, the only option is to formally liquidate the company.

It is crucial to choose the appropriate method through which to close your company. If you take an incorrect route, the company could be reinstated, and you may be held personally liable for any debts.

If your company is liquidated, the Bounce Back Loan will become an unsecured debt. This is unusual for loans supplied by banks, since financial institutions usually require the company’s directors to provide some form of security against the risk of default. Bounce Back Loans, however, were guaranteed by the Government, negating the need for directors to offer their personal assets as collateral. As a result, your personal assets, such as your home, are not at risk if your company goes into liquidation with an outstanding Bounce Back Loan.

It is important to note, however, that the Government is cracking down on any company directors who are found to have misused the Bounce Back Loan Scheme. The conduct of directors leading up to the company’s liquidation will be investigated and, if it transpires that the funds were incorrectly obtained or used for personal as opposed to business purposes, the directors may face disqualification, financial penalties and even criminal prosecution.

How we can help if you have concerns about your Bounce Back Loan

Our expert solicitors and barristers regularly act for businesses facing financial difficulties following the coronavirus pandemic. We have witnessed first-hand the continued fallout from ongoing lockdowns and the economic devastation many businesses now face.

We have particular expertise in HMRC-related matters and can assist with any queries regarding your eligibility for, and use of, funds borrowed under the Bounce Back Loan Scheme or any of the other pandemic support schemes. We will advise on the potential implications of any HMRC investigation and negotiate with HMRC officers on your behalf to achieve the best possible outcome.

If you are struggling to meet your Bounce Back Loan repayments, we will advise on the options available to relieve some of the burden whilst you seek to rebuild your company. If you feel that you have no choice but to close your company and have an outstanding Bounce Back Loan, we will consider the likelihood of you facing any personal liability and advise on the best course of action in the circumstances.