Top 5 Bounce Back Loan Issues For A Director Going Into Liquidation
Top 5 Bounce Back Loan Issues for Directors Going Into Liquidation
Top 5 bounce back loan issues for directors going into liquidation are:
- You cannot strike off a company with a Bounce Back Loan.
- Potential misrepresentation based on exaggerated turnover when applying for the loan.
- Use of loan funds only for the economic benefit of the company.
- A suitable and popular way to close a company with a Bounce Back Loan is creditors voluntary liquidation.
- A Bounce Back Loan does not get written off in liquidation.
You Cannot Strike Off A Company With A Bounce Back Loan
Thinking about striking off your company at Companies House to avoid the cost of liquidation? Well, think again.
If there’s an outstanding Bounce Back Loan, the strike-off will likely be objected to typically by the bank or a government department given His Majesty’s government guaranteed that the bank would not suffer if the borrower could not repay. A strike-off is usually only suitable for companies without debts. It typically must be dealt with through a formal insolvency process such as Creditors Voluntary Liquidation.
Loan Eligibility and Potential Misrepresentation
One of the most common areas of scrutiny in liquidation is how the Bounce Back Loan was obtained given it is a form of credit.
To qualify, a business had to self-certify its turnover to confirm eligibility by having turnover at four times or more of the level of the loan applied for. If turnover was exaggerated or misrepresented to secure a larger loan than was permitted, that could be seen as obtaining credit by deception. Liquidators are required to investigate such matters, and directors found to have knowingly provided false information could face serious consequences, including but not limited to some form of personal liability or even allegations of misconduct which can result in director disqualification.
Use of Bounce Back Loan Funds
The Bounce Back Loan had to be used for the economic benefit of the business not the personal benefit of the directors.
That meant paying suppliers, covering overheads, or investing in working capital, not buying a new car or paying off personal debts.
If a Bounce Back Loan was used personally by the director without any business justification, this could perhaps be treated as an overdrawn director’s loan account in liquidation. In liquidation, that becomes repayable to the company, potentially putting the director at risk of legal action by the liquidator if it is not addressed properly and repaid as far as possible voluntarily.
How to Close a Company with a Bounce Back Loan
If the company cannot repay its Bounce Back Loan and needs to cease trading, Creditors Voluntary Liquidation is often a popular and suitable option.
This ensures that an independent licensed insolvency practitioner is appointed to handle the closure in an orderly fashion as the law provides for. It is formal insolvency procedure recognised and provided for in the Insolvency Act 1986 to enable directors to deal with insolvent comapnies that cannot or should not trade on.
It can enable directors to be seen to be acting responsibly in the face of insolvency. Attempting to sidestep this through trying to strike off the company to avoid creditors can be view in poor light.
Can a Bounce Back Loan Be Written Off in Liquidation?
A key misconception is that liquidation leads to the writing off of the Bounce Back Loan. However, going into liquidation does not “write off” a Bounce Back Loan. The loan becomes an unsecured debt in the liquidation, and the lender can claim in the process like any other creditor.
While directors are not usually personally liable for the company’s debts, misuse of the loan or wrongful trading can change that. They can be personally liable for their misconduct.
As a result, the debt doesn’t magically disappear because the company is liquidated. Whether it is ultimately paid depends on the assets available.
Get in Touch for Help
Directors need to tread carefully when dealing with Bounce Back Loan issues during liquidation. Transparency, proper use of funds, and following formal insolvency routes are usually key.
If in doubt, seek early advice at the earliest oportunity because the decisions you make now can have lasting personal consequences. We are happy to assist you and have done for many directors with Bounce Back Loans.
