Can You Write Off A Bounce Back Loan By Going Into Liquidation?

Fast Fact

Can you write off a Bounce Back Loan by going into liquidation? No, you cannot write off a Bounce Back Loan by going into liquidation.

Liquidation is a legal process to deal with debts. It is not a procedure that makes debts disappear.

What Happens To A Bounce Back Loan In Liquidation?

If a limited company enters creditors voluntary liquidation or compulsory liquidation, all unsecured debts, including a Bounce Back Loan, are not written off when the process is complete. They remain a liability of the company.

There is a difference between debts going unpaid and being written off. The result of going into liquidation may mean the Bounce Back Loan does not get paid in full but it does not mean the debt is written off. 

The liquidator will realise the assets of the company if it has any, discharge the costs of liquidation and if there are surplus funds available, make a distribution to creditors. After that, the company will then be wound up and later dissolved.

The Bounce Back Loan is an unsecured creditor. Although the loan was fully backed by the government guarantee, which ensures the lender is not at risk, it does not mean that a company which goes into insolvent liquidation escapes liability for the debt. Nothing could be further from reality.

Are Directors Personally Liable For The Bounce Back Loan?

Directors are not personally liable for the Bounce Back Loan.

However, that does not mean a director who has applied for a Bounce Back Loan improperly, such as using inflated turnover figures, misused the funds or applied for more than one such loan per limited company, will necessarily always avoid liability.

Directors remain potentially personally liable for their misconduct, not for the contractual position. The contractual position is with the company.

If conditions applicable to the loan have been seriously breached, the liquidator has a duty to report the directors’ conduct to the Insolvency Service. In serious cases, directors could face disqualification, personal liability, or even criminal charges.

Can You Just Shut Down To Avoid Repaying A Bounce Back Loan?

Closing down a company through the voluntary strike-off procedure is not usually appropriate for a company with debts, including a Bounce Back Loan. 

Attempting to use the voluntary strike off procedure can be viewed as an abuse of the process, and creditors can object to it. 

If there is an outstanding Bounce Back Loan, then usually the lenders will object to the voluntary strike off procedure being used and the company will remain live for a considerable period of time. In some cases, years. During that time, the directors continue to have the responsibilities for the company and its filing requirements for annual accounts, corporation tax returns and a confirmation statement at Companies House each year.

In the unlikely event of a strike-off, the company can be restored and placed into liquidation by creditors, potentially with directors facing increased scrutiny.

Going into formal liquidation is often the effective approach to close an insolvent company with a Bounce Back Loan that is outstanding and cannot be repaid.

Get In Touch

If you are struggling to repay your Bounce Back Loan and believe your company is insolvent, then get help and speak to us as soon as possible. 

At Fast Liquidation, we work closely with business owners facing financial distress, helping them explore legitimate options.

Contact us today for a confidential, no-obligation consultation.