The recent economic climate has been challenging, to say the least. Many businesses have faced a considerable amount of hardship due to closure or limited trading throughout the COVID-19 pandemic. To minimise the impact as much as possible, there have been various government initiatives put in place. A key one of which is the Bounce Back Loan Scheme.
A Bounce Back Loan is intended to help smaller businesses navigate this difficult trading period, and can be of an amount up to 25% of turnover to a maximum of £50,000. The repayment rate is 2.5% for up to 6 years, after a grace period of 12 months. These Bounce Back Loans can provide a boost to companies in difficulty, but it might not be enough to avoid longer-term insolvency, leading to liquidation.
It’s important to note that you can still enter into a Creditors’ Voluntary Liquidation (CVL) if you have taken out a Bounce Back Loan.
What Happens to a Bounceback Loan?
A bank loan is usually considered secured. However, in the event of a liquidation, the Bounce Back Loan of the company becomes an unsecured debt. This means that the bank that provided the Bounce Back Loan does not have any substantial claim over company assets in the event of a liquidation.
As a result of this, it is entirely likely that the Bounce Back Loan will be written off in the event of the company going into liquidation.
There will, of course, be a full investigation conducted, and the financial history will be reviewed. In the event of the review revealing the Bounce Back Loan has been misused, then there will most likely be repercussions.
Bounceback Loans and Personal Liabilithy
There are certain situations wherein a director is personally liable for debts in the event of company liquidation – anything secured with a personal guarantee, for example. However, when it comes to a Bounce Back Loan, the government has personally secured the loan themselves, so there will not be any personal liability on the directors. At the point when the debt crystallises, the bank that has provided the loan will request the repayment from the government, not from the company.
Given there is also a temporary suspension of wrongful trading laws, it might seem the system is open to abuse. However, there are measures in place to stop this from happening. There will always be a full investigation into the whole business, the finances and all the directors’ conduct so that any issues will be uncovered. Therefore, the directors’ personal liability will only change in the event of evidence that the loan has been misused against the rules laid out for them, which will be uncovered during the investigation.
Navigating difficult trading periods and potential insolvency problems can be extremely difficult as many options are available, and there are processes to follow. If you believe your business is insolvent and might be heading to the point where you will not be able to recover, it is imperative to contact a qualified Insolvency Practitioner, such as the experts at 1st Business Rescue. We will guide you through all the implications and advise you of the solution that is right for your company, its creditors and directors.
You can call us on 0800 098 8365, message us on 07717738167 or send us an email at help@1stbusinessrescue.co.uk.