What happens to my Bounce Back Loan if my company goes bust?

The number of companies going bust rose by 30% in 2022, reaching over 22,000. Many of the companies affected had sought help from the Government’s bounce back loan scheme to stay afloat through the pandemic and so have outstanding bounce back loans. We are regularly approached by concerned company directors asking, ‘What happens to my bounce back loan if my company goes bust?’

We are a skilled team of solicitors and barristers who couple our outstanding legal expertise with a deep commercial understanding gleaned from years working with public sector bodies, DOW Jones and FTSE 100 businesses. We have helped a considerable number of clients facing financial difficulties following the pandemic. We will take the time to understand your business operations and commercial goals and work with you to find the best possible solution for your business.

Call us today on 01908 414990, email us at hello@altion-law.co.uk or complete our free enquiry form and we will call you back.

What is a Bounce Back Loan?

The covid-19 pandemic had a catastrophic effect on the UK economy. In a bid to mitigate the impact of national lockdowns and local restrictions, the Government took drastic action. It introduced an unparalleled package of financial support, consisting of loans, grants and tax cuts to help struggling businesses.

The most extensive support scheme was the so-called ‘bounce back loan’. The scheme allowed small and medium sized businesses to borrow up to £50,000 at a fixed, low interest rate of 2.5%. The loan was to be used solely for business expenses such as staff wages, commercial rent and utility bills. Thousands of enterprises utilised the scheme, with over £46 billion being borrowed through it.

A bounce back loan constitutes a company debt. It must be repaid over a period of 6 years, with repayment obligations commencing 12 months after the business received the funds.


What are my options if I am struggling to meet my Bounce Back Loan repayments?

 Whilst the financial aid provided by the bounce back loan scheme proved invaluable to many companies, it has caused long term difficulties for some. The monthly repayments on a bounce back loan of £50,000 taken over 6 years are a hefty £940 per month and often took effect when the borrower was still grappling with the effects of the pandemic.

 To alleviate the burden of bounce back loan repayments, the Government introduced a package of support measures known as the ‘Pay as you Grow’ scheme.  Under the scheme, eligible companies have the following options:

  • To repay interest only for 6 months.
  • To take a 6-month repayment holiday.
  • To extend the term of the loan term from 6 to 10 years.

Unfortunately, for some companies, the impact of the pandemic, coupled with the cost of living crisis, has been so severe that they simply cannot survive. In addition to the usual issues that need to be addressed in an insolvency situation, directors who relied on the bounce back loan scheme must address what happens to the bounce back loan if the company goes bust.

Call us today on 01908 414990, email us at hello@altion-law.co.uk or complete our free enquiry form and we will call you back.


What happens to my Bounce Back Loan if my company goes bust?

The legal definition of insolvency is an inability to pay your debts as they fall due. Being unable to meet your bounce back loan repayments indicates that your company is insolvent. However, there may be scope to restructure your debt or refinance to save your business. So, if you are keen to keep trading, don’t give up. We have an excellent track record of negotiating favourable deals for our clients with their creditors, including HMRC, and may be able to find a way for you to work through your company’s financial difficulties.

Sometimes, a company’s financial problems are so extensive that there is no option but to close it down. When a company has outstanding debts, it must be liquidated, and any assets used to pay off its creditors.

Creditors are paid in a specific order. Secured creditors rank first, followed by preferential creditors (such as HMRC) and, finally, unsecured creditors. Bounce back loans were guaranteed by the Government as opposed to the directors, and so rank as unsecured loans in the event of corporate insolvency. As a result, directors are not liable to repay the loan personally, and their personal assets, such as their home, are not at risk.

However, the existence of an unpaid bounce back loan may trigger an investigation into the directors’ conduct by the Insolvency Service. The ease and speed with which bounce back loans were obtained left the scheme open to abuse by unscrupulous individuals who sought the funds for their own, as opposed to their company’s, benefit.  Many more directors misunderstood the eligibility requirements and took out a loan in circumstances when they were not entitled to do so. If the Insolvency Service finds that a director abused the scheme, that director may be disqualified, face financial penalties or even a jail sentence.


How we can help if your company goes bust with an outstanding Bounce Back Loan

 If your company has an outstanding bounce back loan, it is vitally important to take legal advice as soon as you suspect it may go bust. Timely legal advice will give your company the best possible chance of survival and minimise the likelihood of you facing personal liability in the event that it is closed down. We have extensive experience helping directors who utilised the Government’s covid-19 support schemes and whose company is now insolvent. We will advise on your eligibility for a bounce back loan at the time you made the application and assess your use of the funds. We will gather evidence to support your position should the Insolvency Service subsequently investigate your conduct and act on your behalf throughout any such investigation. Our advice is concise, straightforward and commercially focused. We will work with you to devise a strategy that aligns with your business goals whilst ensuring your personal interests are protected to the fullest extent possible.

Call us today on 01908 414990, email us at hello@altion-law.co.uk or complete our free enquiry form and we will call you back.