Can a company write off a Bounce Back Loan? What options do you have to deal with debt?

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    Can You Write Off a Bounce Back Loan?

    While the Bounce Back Loan Scheme (BBLS) has helped thousands of businesses during lockdown, but some still struggle with coronavirus-related debts, so can you write off a Bounce Back Loan if your business can’t repay? What happens to your company’s Bounce Back Loan if it goes into liquidation?

    What is a Bounce Back Loan?

    The Bounce Back Loan Scheme (BBLS) came into effect in May 2020 to combat the economic hardships brought on by the coronavirus pandemic. It addressed many of the criticisms made against the Coronavirus Business Interruption Loan Scheme (CBILS). The scheme allowed businesses to borrow between £2,000 and £50,000 with no interest or fees for the first year, and the government guaranteed the loans.

    More about Bounce Back Loans

    What if you can’t repay your Bounce Back Loan?

    Even with a Bounce Back Loan’s extra funds, some companies may find themselves unable to repay their debts. The money wasn’t a grant, and your company still needs to repay what it borrowed.

    If you can’t repay a coronavirus support loan

    The government has attempted to assist businesses struggling to repay their Bounce Back Loans by offering more flexible repayment options under the ‘Pay as You Grow’ initiative.

    Can you write off a Bounce Back Loan if your company cannot repay?

    Even with the government guaranteeing Bounce Back Loans, if you’re unable to pay back the loan, the amount borrowed won’t automatically be written off. The only time a company could write off a Bounce Back Loan would be if that company undergoes a liquidation.

    Write off a bounce back loan

    What happens to a Bounce Back Loan if your company goes into liquidation?

    If you have received funds from the scheme, your company can still undergo an insolvency arrangement, be that a Company Voluntary Arrangement (CVA) or a Creditors Voluntary Liquidation (CVL).

    Your unpaid Bounce Back Loan becomes an unsecured debt, which can be included in an insolvency arrangement. Similarly, if your company was liquidated, an unpaid Bounce Back Loan would only be repaid after the company’s secured and preferential creditors. However, if the debt relating to a Bounce Back Loan remains at the end of the insolvency arrangement, that debt is written off.

    Bounce Back Loans in liquidation

    How we can help

    If your company is struggling with coronavirus-related debt, whether or not it includes an unpaid Bounce Back Loan, speak to a licensed insolvency practitioner, such as ourselves. Taking advice and action to tackle the debt is essential if you want to save the company and minimise any potential repercussions.

    • Formal repayment arrangements
      A Company Voluntary Arrangement (CVA) is a popular option for indebted companies, allowing them to repay their unsecured debts in monthly instalments tailored to what they can afford. As Bounce Back Loans are classified as unsecured debts in insolvency, they can be included in a CVA.
      More on Company Voluntary Arrangements
    • Restructuring the company
      If repaying your company’s debts isn’t a viable option, you can take more drastic action. An administration involves a licensed insolvency practitioner taking control of the company and making the necessary changes to make it profitable and viable for any potential buyer. Any Bounce Back Loan is considered during an administration.
      More on administration
    • Closing the company
      Sometimes, attempting to recover the company isn’t feasible, and you’d be better off closing the company down. By entering a Creditors Voluntary Liquidation (CVL), the company is allowed to close in an orderly manner, allowing you to start afresh in a new limited company. A Bounce Back Loan becomes an unsecured debt in liquidation, so it’s only repaid after the company’s secured and preferential creditors.
      More on liquidation

    In summary

    While the Bounce Back Loan Scheme (BBLS) has helped companies get through the difficulties of lockdown and restrictions, some businesses may struggle to repay their loans in the coming months and years. If you can’t repay your Bounce Back Loan, the government have increased the flexibilities around repayments. While an insolvency arrangement won’t automatically write off a Bounce Back Loan, it will become an unsecured debt and be repaid after the company’s secured and preferential creditors. Once the company’s repaid what it can afford, any remaining debt is written off.


    Can I be held personally liable for my company’s Bounce Back Loan?

    Since the government provides 100% security for Bounce Back Loans, personal guarantees are not required. Directors would become personally liable for a Bounce Back Loan if they’re deemed to have committed wrongful or fraudulent trading or inappropriately used the loan. If evidence of such action comes out during liquidation, the director could be investigated and end up being held personally liable for the loan’s amount.

    Personal liability and Bounce Back Loans

    What if I’ve misused my Bounce Back Loan?

    The Bounce Back Loan Scheme was designed to support businesses through the pandemic, and the funds borrowed should be used to support and continue the business. If, however, you’ve misused the Bounce Back Loan for personal gains or other improper uses, you could face prosecution or accusations of fraud.

    Misuse of Bounce Back Loans

    How long do I have to repay my Bounce Back Loan?

    Bounce Back Loan repayments weren’t required for the first year with zero interest. After that first year, interest increases to 2.5%. The scheme initially allowed six years to repay the loans, which later extended to ten. Additionally, the Pay as You Grow initiative has increased flexibility for businesses that may struggle to repay under normal circumstances.

    Beverley Horton Christopher Callaghan Stephen Hall

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