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What will happen to your Bounce Back Loan if your company is liquidated?

A lot of businesses struggling over the past months because of the COVID pandemic and lockdown have benefited from the Bounce Back Loan Scheme (BBLS); this scheme has shown to be a beacon of hope for these struggling businesses and allowed them to keep their doors open.

The Bounce Back Loan Scheme allows businesses that meet the criteria to borrow funds between £2,000 – £50,000 to cover additional expenses for buying equipment to protect customers and staff, and to recover from the difficulties caused by Coronavirus.

But what happens if, despite the support put in place, the company struggles to stay open and eventually needs to be closed and liquidated?

Is it possible to liquidate your company if it have taken out a Bounce Back Loan?

Yes, even if your company has taken out a bounce back loan it can still be liquidated. This is because some businesses may still find it difficult to continue with trade during or after this turbulent period, even with the extra funds from the loan. Recovery of the business may not be suitable or realistic if your company has become insolvent (the business can’t pay its debts as and when they fall due).

If you have taken out a BBL, you can use Creditors Voluntary Liquidation (CVL) to liquidate an insolvent company.

What if there isn’t any assets or funds to pay for a liquidation?

You may also be able to use Administrative Dissolution if there are no assets or funds available to distribute to creditors or pay for the liquidation costs which can usually be between £2500 and £6000.

What will happen to your Bounce Back Loan if you liquidate your company?

In the event of a company being liquidated, the Bounce Back Loan turns into unsecured debt. An unsecured debt differs from a secured debt, where company creditors take over assets belonging to the company to secure their funds.

Unlike a secured debt, an unsecured debt, as well as their creditors, do not have substantial claims over assets belonging to the company.

Can you be held liable for an unpaid Bounce Back Loan?

No. Usually, in the event of a company being liquidated, any personal guarantees signed by the director to secure funding become clear and the company director is personally responsible for those funds.

Directors, however, are not liable for an unpaid Bounce Back Loan because they are 100% guaranteed by the Government and not by the director themselves. When the debt crystallises, the issuing body, creditor, or bank will request that the Government repays the loan.

Nevertheless, this, as well as the short-term relaxation of wrongful trading laws, does not mean directors will not be held accountable for actions like abuse of the Bounce Back Loan or fraudulent trading.

The conduct of the company directors are still investigated during the liquidation process and any director involved in wrongful actions or misfeasance will be held personally liable.

To sum up

The Bounce Back Loan Scheme is designed to help struggling businesses with debts incurred because of the current global pandemic caused by the unseen enemy, Coronavirus.

A BBL will not stop you from closing or liquidating your company, and the loan will be classed as an unsecured debt.

As a director, the only way you will be personally liable for the loan is if you are found guilty to have abused the scheme or committed fraudulent trading.

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