What options are available if a Bounce Back loan cannot be repaid?
While these immediate loans have proven to be a lifeline for many businesses that were not able to operate normally, businesses now have to factor in the monthly repayments of the Bounce Back loan, even though the business may not be. – have not returned to pre-pandemic levels, which means their cash flow is still a concern.
Who is responsible for the debt if a Bounce Back loan cannot be repaid?
Bounce Back loans came with many attractive benefits, one of which was that the UK government provided 100% security to lending banks. This meant that no personal guarantees were to be given by the directors or shareholders of the company.
While it may not mean much while the loan is being paid off as scheduled, should the borrowing company become insolvent, this government guarantee is extremely valuable. Since the loan is guaranteed by the government instead of a personal guarantee from the director, if the company finds itself in financial difficulty and subsequently enters an insolvent liquidation process, the responsibility for repayment of the Bounce Back loan will rest with the company. government rather than the director of the company.
If a business cannot afford to repay the Bounce Back loan, the directors will only be held personally liable for the repayment of the money if it can be proven that they have misused the Bounce Back loan funds.
Misuse of Bounce Back Loan Funds
Bounce Back Loans weren’t designed for a single purpose, but were instead offered to businesses to use in any way that would provide “an economic benefit” to the business during the coronavirus pandemic. . This could include strengthening its cash position, purchasing new machinery, replenishing inventory, or paying staff salaries.
As long as the money has been spent in a way that directly relates to the business and its operations, you are unlikely to be accused of misusing the funds. However, if the money were used to fund personal purchases, business executives could be personally liable for the unpaid amount if the business is unable to meet the agreed monthly repayments.
If there is any doubt as to whether the funds from the Bounce Back loan may have been spent in an unforeseen manner, you should urgently seek the advice of a licensed insolvency practitioner. They will be able to assess the situation and determine if the personal liability of the Bounce Back loan is a matter of concern.
Frequently Asked Questions About Bounce Back Loan Repayment
The Bounce Back loan cannot be paid immediately but I think the business has a future
If you are currently unable to pay the monthly Bounce Back loan repayments, that does not mean the business is unrecoverable. There are several business rescue and turnaround strategies that could help strengthen the cash position.
For those who owe HMRC money, a Time to Payment Agreement (TTP) can be negotiated. A TTP agreement works like a payment plan between the company and HMRC, where the company promises to pay any taxes that are due, and HMRC gives them more time to do so. TTPs typically last up to 12 months and should be set at an affordable and maintainable level for the business. Alternatively, a formal insolvency process may be better suited if the debts are larger and owed to a variety of creditors.
If a business faces threats of legal action, putting the business under guardianship could give it the time and breathing space it needs while a way forward is planned. For those with growing debts, a Corporate Voluntary Arrangement (CVA) allows them to consolidate their debts into a single, legally binding payment plan that will see all included debts wiped out within a specified time – typically three to five years. Administration and CVAs can only be concluded under the direction of a licensed insolvency practitioner.
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 from any other unsecured loan that 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 business through voluntary liquidation of creditors – or CVL – is handled by a licensed insolvency practitioner. They have a number of duties during the process, and one of them is to identify the assets of the business before distributing the proceeds from them to unpaid creditors.
In the case of an insolvent business, the value of creditors will outweigh the value of available assets. Accordingly, any debt that cannot be repaid will be written off upon the formal and official closure of the company at Companies House.
Unless this loan has been the subject of a personal guarantee by the director, the directors / shareholders of the insolvent company will not be invited or expected to reimburse the shortfall.
Need Help With Your Bounce Back Loan Problems?
If a business has missed a Bounce Back loan payment, or if you think it might in the future, seeking expert help and advice should be a priority. There are many ways to turn around a financially struggling business, however, taking this step at an early stage is essential to increasing the chances of success.
At TaxAssist Accountants, we work with a number of specialist partners, including Begbies Traynor, to help administrators explore the options available if they are facing financial challenges. For more information on this topic, please call Begbies Traynor on 0800 056 0444 or email us at [email protected].
Publish Date Sep 01, 2021