Will I Be Personally Liable For A Bounce Back Loan If I Go Into Liquidation?
Fast Liquidation Fact
A director will not be personally liable for a bounce back loan if a company goes into liquidation. However if a director has incorrectly applied for a bounce back loan, misused it or applied for more than one in the same company, then such misconduct when considered fraudulent which could lead to personal liability.
Liability For A Bounce Back Loan
It is the limited company that applied for the loan and that is liable to repay the bounce back loan.
It was a requirement under the bounce back loan scheme that a personal guarantee could not be sought by the lender from company directors. As a result, absent misconduct, a director’s personal assets should not be at risk
So, in most cases, if a company goes into creditors voluntary liquidation or compulsory liquidation, a director will not be personally liable for repaying the loan.
The bounce back loan is an unsecured creditor of the company, just like any other creditor without security. As a result, if the company goes into liquidation and there are insufficient assets to repay creditors in full, then the bounce back loan cannot be paid in full.
When Could A Director Be At Risk Of Personal Liability?
If a director acted inappropriately, then they could have some personal liability resulting from misconduct as follows.
Overstating Turnover On A Bounce Back Loan Application
A company could only apply for a bounce back loan at a level that was 25% of the turnover for the calendar year 2019. If the company had not commenced trading by 1 January 2019 then a director could estimate the level of turnover.
However, if the turnover was exaggerated on the application form for the loan then this could be considered obtaining credit by deception and fraud. Personal liability could result from that.
Misuse of Bounce Back Loan Funds
Bounce Back Loans had to be used for the economic benefit of the company, covering costs like wages, rent, or suppliers.
If the loan was used for personal expenses, luxury items, dividends or simply transferred to your personal bank account without justification, this may well be considered misuse of the bounce back loan, which could result in some personal liability for a director.
Particularly when bounce back loan funds were transferred to a director’s personal bank account, this could result in an overdrawn director’s loan account, which a director will be personally liable for, as it is an asset of the company.
Applying For More Than One Bounce Back Loan
Each limited company was confined to a maximum of one bounce back loan. If a company obtained more than one, this would be considered fraud and personal liability could result from such conduct.