A crucial part of the government’s coronavirus support package for businesses was the Bounce Back Loan Scheme (BBLS), which was introduced to provide emergency funding for those affected by the pandemic.
It was a hugely popular scheme with a high uptake among SMEs keen to take advantage of the loan scheme’s many benefits, including a low rate of interest and the government providing security for the full amount taken out.
Depending on how your business is currently faring, you may be wondering what happens to your Bounce Back Loan if you have to enter liquidation or administration. Does it have to be repaid regardless of the company’s position? Are you at risk of personal liability? Or can a Bounce Back Loan be written off alongside other company debts?
Bounce Back Loans offered support for businesses experiencing cash flow disruption due to the Covid-19 pandemic. They were fully backed by the government in order to reduce the risk for lenders, and encourage lending. This meant no personal guarantee had to be provided by the directors of the company taking out the borrowing.
Additionally, no repayments needed to be made for 12 months from the start of a Bounce Back Loan, with the interest on the loan during this first year also covered by the government.
A Bounce Back Loan is classed as an unsecured loan of the company. In the event of the company entering insolvent liquidation - a terminal process that means the end for a company - any unsecured debts that cannot be repaid are written off.
With many unsecured loans, the bank would have requested a personal guarantee at the time of taking out the borrowing to protect them in the event of the company being unable to repay the loan and entering liquidation. A personal guarantee transfers the liability for repaying the loan from the company onto the company director personally.
In the event of a Bounce Back Loan, however, the government provided security to the banks meaning directors were not asked to provide a personal guarantee. Should the company enter liquidation, therefore, directors will not need to repay the outstanding amount of any remaining Bounce Back Loans.
Company administration doesn’t necessarily end in liquidation. In many cases, in fact, it is used as a rescue process to enable the company to get back on a solid financial footing. Due to this, a Bounce Back Loan will not be written off when a company enters administration, but the terms of the repayment of the loan may be able to be negotiated as part of the process.
For example, administration could result in a restructure of the company’s debts within a Company Voluntary Arrangement (CVA). This is a formal agreement that benefits the company, allowing them to pay a single affordable monthly repayment that’s negotiated by the administrator. The Bounce Back Loan can form part of this new agreement, and the business may then return to trading as normal.
If the administration of the company eventually results in liquidation, however, the Bounce Back Loan will be written off at this point.
The Bounce Back Loan Scheme was part of a specific initiative by the government to support businesses and the economy during the coronavirus pandemic, and is backed 100% by the government.
Unlike the Coronavirus Business Interruption Loan Scheme (CBILS), which was only partially government-backed with some lenders demanding personal guarantees, a Bounce Back Loan required no such guarantees from directors.
This means you’re protected from personal liability for repayment unless there are other underlying circumstances that come to light following investigation after liquidation. Bounce Back Loans are being scrutinised very closely in liquidations at present. In some cases, the director(s) are being reported by the lender on grounds of the company not being solvent as of 31st December 2019 - one of the prerequisites of obtaining a BBL.
If you believe your company is heading towards liquidation and you’re concerned about an unpaid Bounce Back Loan, it’s vital to obtain professional assistance from a licensed insolvency practitioner (IP). You should cease trading immediately and prioritise your creditors’ interests if you believe the company is insolvent, or will become insolvent in the near future.
If the business cannot be rescued and has to enter liquidation, it’s preferable to do so voluntarily via a Creditors’ Voluntary Liquidation. Although it does mean permanent business closure, you may be able to claim redundancy and other statutory payments as a director.
Begbies Traynor are insolvency specialists, and will provide the professional support you need at this time. We can quickly assess your company’s financial position and present any appropriate options for rescue and recovery, or act as liquidator if the business is no longer viable. Please contact one of our partner-led team to arrange a free confidential consultation – we operate an extensive network of offices throughout the UK.
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