What is a Bounce Back Loan?
In March 2020 the United Kingdom entered lockdown, and a series of guidelines that forced businesses to close were enforced. To protect small and medium sized businesses, the government bounce back scheme was created. This enabled businesses to receive a recovery loan that would reduce the impact of the pandemic. Announced in March 2020, the BBL offered a low interest rate, no repayments for the first 12 months and a 100% guarantee to the lender.
So, what exactly was a government bounce back loan? A government bounce back loan (BBLS) was a scheme that enabled small and medium-sized businesses to receive financial aid during the Coronavirus Pandemic. With nation-wide enforced lockdowns, businesses were forced to close unless they provided an essential service, such as healthcare or construction. With this help, Directors were able to ensure that their business did not close as a result of pandemic restrictions.
The vast majority of our recent enquiries here at Restart BTi involve Bounce Back Loans. BBL’s were given to businesses that had been adversely affected by Covid and needed the funds for the purpose of their business. The amount of the loan was restricted to 25% of turnover up to a maximum loan of £50,000. To learn more about this scheme, we’ve answered all your essential questions below. Simply keep reading to learn more.
Can Director’s Simply Walk Away From These Government Loans?
The simple answer is yes. And no!
If the business has been unable to recover from the effects of the pandemic and cannot be rescued, then a director is obliged to wind the company up. The lender will then become a creditor in the liquidation as the loans were not supported by any personal guarantees. A liquidator will then check that the company was entitled to that level of loan, the director has not personally benefited from the loan and that the funds were used for the benefit of the business. If that is the case, then a director is able to simply walk away from these loans.
However, if not, then a liquidator has the power to seek compensation from the director as a result of a breach of his fiduciary duties.
Any abuse of the BBL scheme will also be a reportable offence when a liquidator submits his report on the conduct of directors so it is likely that a director will also be disqualified from acting as a director for a number of years. The vast majority of disqualifications we are seeing at the moment are as a result of BBL scheme abuse, with hefty periods of disqualification being given, up to 9 years in some cases. The Insolvency Service are regularly publicising these disqualifications:
Directorship disqualification – GOV.UK (www.gov.uk)
We offer clear and transparent advice for directors who are considering liquidating their company and will discuss these matters at the initial meeting so your client is fully aware of the implications. Please speak to Gareth on 01246 959388 for further advice.
Can I Strike Off My Company to Avoid Paying My Bounce Back Loan?
Companies must be solvent in order to be struck off. If the company does have outstanding debts, they must be repaid in full before the company can be struck off
We are seeing a considerable number of voluntary striking off applications being objected to, either by HM Revenue & Customs if there is outstanding tax, or the Secretary of State for Business, Energy and Industrial Strategy if there is an outstanding government Bounce Back Loan.
If an application to strike a company off the Companies House Register is rejected due to its outstanding debts and the business cannot afford to repay those debts, it will be viewed as insolvent. In that case, a Creditors’ Voluntary Liquidation (CVL) is likely to be the best course of action.
At the minute, directors seem reluctant to place the company into liquidation and have had very little pressure forced on them by the creditors concerned. However, that stance is now changing, with the number of petitions being advertised in The London Gazette just about getting to pre Covid levels.
Can I Repay My Loan Early?
Yes. If you’re able to pay back your BBL early, it is advised that you do so before the agreed contract ends. By doing so, you will not be subjected to any early repayment charges.
What Happens if I Can’t Pay Back My Government Bounce Back Loan?
If you’re struggling to pay back your BBL, then our Insolvency experts at Restart BTi are here to help. Our Insolvency Practitioners will work with you to determine if your business is insolvent, and what actions are needed to act in your best interest. We will look to find the best solution to meet your individual circumstances.
Our team will be here to support you and your business through every step. Contact us today for confidential, tailored support and guidance to help your business.
Established in 2018, the directors at Restart BTi have over 50 years of experience to assist companies, business owners and individuals with expert advice and tailored solutions when facing financial difficulties.
