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What happens to my Bounce Back Loan in liquidation?

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The Bounce Back Loan Scheme (BBLS) has proved a lifeline to many businesses struggling over lockdown. The scheme allows eligible businesses to borrow between £2,000 and £50,000 to cover additional costs for purchasing equipment to protect staff and customers, and to recover from coronavirus-related hardships.

More information on the Bounce Back Loan Scheme

Can I liquidate my company if I have a Bounce Back Loan?

Even with the extra funds, businesses may find continuing to trade unfeasible in the current climate. If your company has become insolvent, recovery may not be an option. You can still liquidate an insolvent company via Creditors Voluntary Liquidation (CVL) if you’ve taken out a Bounce Back Loan.

More options for company closure

What happens to my Bounce Back Loan if I close my company?

Although banks are often considered secured creditors, with the owed debts fixed over company assets. However, this is not the case with a Bounce Back Loan.

If your company does go into liquidation, your Bounce Back Loan becomes an unsecured debt. Unsecured debts are different from secured debts, where creditors such as banks and factoring companies hold charges over company assets to secure their funding. Unlike secured debts, unsecured debts, and their creditors don’t have substantial claims over company assets.

What are unsecured debts?

Bounce Back Liquidate

Am I personally liable for an unpaid Bounce Back Loan?

Normally, when a company goes into liquidation, any personal guarantees that the director may have signed to secure funding will crystallise. Afterwards, the director is personally liable for those amounts.

Bounce Back Loans are 100% guaranteed by the Government, and thus free of personal guarantees for directors, who won’t be liable for the loaned funds in liquidation. Once the debt crystallises, the bank which provided that loan will demand repayment from the Government and not the company’s director.

However, this, and the temporary relaxation of wrongful trading laws, doesn’t mean directors can get away with actions such as fraudulent trading or abuse of the BBLS. During the liquidation, the directors’ conduct is still investigated. If they’re found to have acted improperly, those directors could still be held personally liable.

When are you personally liable for company debt?

In summary

The Bounce Back Loan Scheme (BBLS) intends to help businesses struggling with debts incurred due to the coronavirus. However, even with a Bounce Back Loan, some companies may still have to liquidate, and directors may be worried about what will happen afterwards. A Bounce Back Loan won’t stop you liquidating your company, and the loan becomes an unsecured debt. You won’t be held personally liable for the loan unless your liquidator finds you’ve committed fraudulent trading or abused the scheme.

How we can help

If your business is struggling from coronavirus-related debt, regardless of whether you’re receiving funds through a Bounce Back Loan, speak to us. Our licensed insolvency practitioners have years of experience in business recovery and closure, and our friendly initial advisors can offer you free, impartial advice, with no obligation. Speak to us today and see how we can help you.

Authored by Lisa Hogg

Lisa Hogg

Director & Licensed Insolvency Practitioner

Beverley Horton Christopher Callaghan Stephen Hall

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