As a director, you are not personally liable for the repayment of a company Bounce Back Loan (BBL) unless you are found to have misused it. The government guaranteed 100% security for BBLs in cases of insolvency or legal action, eliminating the need for personal guarantees.

When could I be liable for Bounce Back Loan misuse?

Bounce Back Loan misuse can involve fraudulently obtaining the loan or engaging in activities that don’t align with the BBL scheme’s terms and conditions.

Inappropriate uses included:

• Fraudulent Application
  If you provided false information when applying for the loan, this could be considered fraud. False information could include:
  • Falsifying business turnover
  • Using non-existent businesses
  • Multiple loan applications
  • Impersonating existing businesses
• Dividends
  The Bounce Back Loan could not be used as a dividend as this must be paid from profits, which the loan isn’t. You could still draw dividends. However, they should not have been paid if your company was not profitable.
• Increase salary
  A Bounce Back Loan could be used to cover salaries, but you should not have used it to increase salaries without justification, especially if the company is in a difficult financial position.
• Directors loan account
  The Bounce Back Loan could temporarily be lent to you as director. However, this needs to be paid within nine months. If the company becomes insolvent in that time, you can be held personally liable if it’s within an overdrawn director’s loan account.
• Personal expenditure
  The loans should not have been used for buying luxury goods or holidays, paying deposits on personal property or non-business assets.
• Non-business-related investments
  Bounce Back Loans should not have been used for non-business-related investments.
• Preference payments
  If your company is insolvent, it should not make any preference payments. Just as with any other preference payment, if a Bounce Back Loan is used for prioritising one creditor over another, you can become personally liable.

What are the consequences if you have misused your company Bounce Back Loan?

If you are found to have misused your bounce back loan, you could face one or more of the following consequences.

• Criminal prosecution
  Under the Fraud Act 2006 you can be criminally prosecuted, which can lead to fines or imprisonment.
• Personal liability for funds and compensation of assets
  You could be held personally liable for the misuse of bounce back loan funds, including compensation for assets acquired by the loan, and may be required to repay through your personal finances.
• Director disqualification
  You could face a ban on being able to hold a directorship for a current or future company, or directly or indirectly take part in the formation of a new company.

What could you use your Bounce Back Loan for?

BBLs were designed to help with the economic benefit of the business, paying working costs, making up for reduced takings or ensuring continued trading.

Appropriate uses for a BBL included:

• Economic benefit of the business
  Maintaining a healthy cash flow and managing the general day-to-day running of the business.
• Covering outgoing costs
  All standard and usual outgoing costs that the company has can be covered by the BBL, such as paying staff, suppliers, loans, utilities, commercial rents, and business rates.
• Company investment
  BBLs could be used for general investment into a company needed to sustain and grow that company, such as new production machinery, or equipment.

What if your company cannot pay its Bounce Back Loan?

If your limited company cannot afford to repay its Bounce Back Loan, you could:

• Speak to the lender about your options to repay
  Doing so can demonstrate a willingness to repay the company’s BBL, and the lender may be more open to negotiating affordable repayments or amending the existing terms than if the company defaults on the loan.
• Explore the government’s flexible Pay As You Grow Option (PAYG)
  Pay As You Grow is a government support option allowing more flexible repayments for companies with a Bounce Back Loan.
• Contact us for free, impartial advice
  If you’re worried about your company’s BBL, personal liability, or any other financial issues your company is facing, we are licensed insolvency practitioners that can help you explore the formal insolvency solutions available to your company.

How can our services help your company?

As licensed insolvency practitioners we can offer free confidential advice and can carry out the below formal insolvency procedures to help you and your company. Depending on your circumstances, one of the below options can help you address your company’s unsecured debts, including a Bounce Back Loan.

Depending on your circumstances, your options for dealing with a BBL may include:

• Repay your company debts in a payment plan via a Company Voluntary Arrangement (CVA)
  A CVA is a payment plan between a company and its creditors that allows you to restructure your company’s unsecured debts, while continuing to trade, by making affordable monthly payments over a fixed period. We start by assessing your company’s financial position, determining a realistic repayment amount. These terms are then proposed to your creditors and if approved, your company enters the repayment plan. When in place, all interest and charges are dropped and creditors in the arrangement cannot take further legal action. The process lasts for up to 5 years and on successful completion, any remaining unsecured debt in the arrangement is written off.
  More on Company Voluntary Arrangements
• Restructure your company through administration
  Administration is an insolvency procedure for companies that are insolvent. Entering the procedure, your company will be in a temporary state of protection by a moratorium, that halts creditor action, including legal proceedings, giving your company the breathing space to continue trading. We will act as administrator and our primary purpose is to rescue your company as a going concern, attempting to restructure and turn it into a leaner more profitable organisation. If rescuing the company isn’t a viable option we will also look at the most appropriate exit strategies from administration, whether that be a potential sale of the business, assets, the whole company, or transitioning to an alternative insolvency procedure.
  More on administration
• Close your company down via a Creditors Voluntary Liquidation (CVL)
  A CVL is a liquidation procedure for companies that are insolvent. The process will formally close and liquidate your company, ceasing its trading operations, realising any assets and removing the threat of creditor legal action. If your company has employees, they can claim for redundancy and other statutory entitlements through the government’s Redundancy Payment Service (RPS). The process is final and irreversible. Once completed your company’s unsecured debt will be written off and the company is dissolved, allowing you, the director to move on.
  More on Creditors Voluntary Liquidation
• Close your company down and start again via a Pre-pack liquidation
  A Pre-Pack liquidation is a type of CVL where the sale of your company’s assets is arranged before liquidation, allowing business operations to continue seamlessly under the purchasing company. The company name may be reused, and employees can transfer under TUPE. Contracts and essential agreements can also be included as part of a sale, ensuring minimal disruption to your business operations. This process eliminates the unsecured debts of your previous company, providing a fresh start free from previous unsecured liabilities.
  More on Pre-pack Liquidation

How to get in touch: The next steps for engagement

1. Speak with our initial advisers
   Make contact with our team, via phone, filling in a form, or online chat. We will assess your circumstances and, if suitable, arrange a free consultation with a consultant to discuss your company’s situation.
2. Initial assessment
   During the consultation, we will advise if an insolvency procedure is the most appropriate route forward or whether an alternative solution better suit your company’s problems.
3. Formally engage us
   If there is an appropriate insolvency solution, we will confirm the necessary steps to start the procedure and will issue you with the relevant documentation for you to formally engage us. 

In summary

You will not usually be held personally liable if your company can’t repay a Bounce Back Loan. The exception being if you’ve misused the funds for purposes outside of what the loan was intended for. If your company is struggling with BBL repayments, or any other debts, you can consider the insolvency solutions available.

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