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Bounce Back Loan: Can I be held personally liable for repayment?

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In the fallout of the initial national lockdown brought on by the Coronavirus outbreak, many UK businesses have benefited from the financial security of the government’s Bounce Back Loan Scheme.  

With some companies continuing to face hardship due to reduced business, directors may find themselves wondering if they could be held personally liable for the repayment of such loans. Here we discuss how the Bounce Back Loan scheme works, and who could be held liable in the event of company liquidation. 

What is the Bounce Back Loan scheme? 

The Bounce Back Loan Scheme (BBLS) was introduced by the government to help businesses affected by the COVID-19 crisis return to operations more smoothly. It involves loans of up to £50,000 for SMEs across the UK, the interest on which is secured by the government for the first 12 months (followed by a rate of 2.5% fixed for up to 10 years). The loans provide borrowers with a 12-month payment grace period to cope with the current financial climate. 

Because the loans are secured by the government, the risk to lenders facing financial difficulty within their business is lower compared to alternatives. 

Who is eligible? 

In order for a company to be eligible to receive funding from the BBLS, it must first confirm a number of declarations. These include: 

  • Agreeing to the terms of the loan, and subsequent repayment. 
  • Confirming that the company has been ‘adversely affected’ by the effects of the COVID-19 outbreak, and was not in significant financial difficulty prior to 31st December 2019. 

Companies who have faced financial difficulty before 31st December 2019 (including administration or debt restructuring) may still be eligible for the loan, although there may be added restrictions. 

What happens if I can’t afford to repay my bounce back loan? 

The BBLS was established with those struggling with the financial effects of the Coronavirus outbreak in mind. It is for this reason that the government has provided 100% security on the loans for the first 12 months. 

However, after the initial grace period, the responsibility for the loan’s repayment will be on the company. This will take the form of monthly repayments, which will need to be adhered to in order to meet the terms of the loan.  

If a company faces a situation in which it cannot afford to repay its bounce back loan, it should be treated just as any other unsecured company debt would be. This would likely see the company needing assistance from insolvency professionals such as ourselves, in order to either organise a re-evaluated repayment plan such as a Company Voluntary Arrangement, or place the business into voluntary liquidation

If your company reaches the stage of being unable to meet repayments on any debt, including a bounce back loan, it is crucial to contact us as soon as possible to take action. 

What can happen if you can’t repay a Bounce Back Loan

Can I be held personally liable for my bounce back loan? 

Because the government provides 100% security for the loan, there is no need for company directors to supply creditors with a personal guarantee. This is incredibly beneficial for businesses who may be unable to recover from the effects of COVID-19, and may later face insolvency procedures such as Creditors Voluntary Liquidation. In this scenario, so long as the directors are not deemed to have committed wrongful/fraudulent trading, or utilised the loan in an inappropriate way, the liability for the repayment of the debt will lie solely with the company itself. If the funds were used inappropriately, then the Liquidator could potentially pursue you for the money that was not used appropriately.  

This means that, in normal circumstances, directors face no risk of personal liability for the amount borrowed through the BBLS. However, if you have any concerns, please contact us for advice. 

What happens to a Bounce Back Loan in liquidation

In summary 

The Bounce Back Loan Scheme (BBLS) was introduced by the government to assist companies facing financial difficulty due to the effects of COVID-19. It provides loans of 25% of a company’s turnover (up to a maximum of £50,000) accompanied by a 12-month payment grace period, which is also interest free, and 100% secured by the government.  

After the initial 12-month grace period, the company faces responsibility for the repayment of the loan through monthly instalments. This is accompanied by a 2.5% interest rate, which is fixed for up to 10 years. 

Because there is no need for company directors to provide a personal guarantee for the loans, they will not be held personally liable in normal circumstances. Directors who are found to have participated in wrongful/fraudulent trading are, however, at risk of being made liable for some, or all, of their company’s debts.  

Should the company find itself unable to repay its bounce back loan, it is crucial that directors take action as soon as possible by contacting insolvency professionals such as ourselves.  

How we can help 

As licensed and regulated insolvency professionals, we can offer well-informed advice to companies facing financial difficulty. If you fear that your company may be unable to meet the repayment terms of its bounce back loan, or any other debt, we can help. Through processes such as Company Voluntary Arrangement (CVA), or Creditors Voluntary Liquidation (CVL), we can act to rectify your company’s position in the best interest of its creditors.  

Acting as soon as possible minimises the risk of directors facing accusations of wrongful trading, and being threatened with liability for company debts.  

We offer a free consultation with one of our experienced advisors to evaluate your company’s position, and work out the best way forward. It is crucial to act quickly if you feel that your company is unable to meet its liabilities. Get in touch today. 

Beverley Horton

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