Can a Limited Company With a Bounce Back Loan be Dissolved?

Dissolving a Company with a Bounce Back Loan

Unfortunately a lot of company directors are becoming aware that their business may not survive in the long run, even though they took out a Bounce Back Loan to get them through a difficult period.

Since it is likely to become insolvent, and may need to close, you probably want to know if it is possible to dissolve a company with a bounce back loan.

Can I dissolve a Limited Company with a Bounce Back Loan?

Yes, it’s possible to dissolve a company with a Bounce Back Loan.

However, this process must be legal and done whilst complying with all statutory responsibilities.

A Bounce Back Loan, from a legal perspective, is just like any other debt. The difference, however, is that a personal guarantee was not required as they were backed by the government.

It is understandable that you may want to close your company when you realise that it is no longer viable, but you need to follow the due and correct process.

To close a company with debts there are two options and it depends on whether the company has any assets.

Liquidating a Limited Company with a Bounce Back Loan when there are assets

If the company has enough assets, like cash at the bank or stock which can be sold, you can clear debt and close a limited company through a Creditors Voluntary Liquidation.

A company director may also be able to make a claim for redundancy through the redundancy payments office. This can be used towards the cost of  liquidation.

In this liquidation process, a licensed insolvency practitioner comes into play to deal with creditors, sell company assets to clear debts, and facilitate the liquidation of the company. A liquidation will usually cost from £4000 and upwards, usually in the £5000 area.

If you are worried about your finances and you have been trading for 2 years, then applying for directors redundancy payments could be a possible route to paying the fees.

Dissolving a Limited Company with a Bounce Back Loan and no assets

The Administrative Dissolution process is based on the benefits of using Sections 1003 to 1008 of the Companies Act 2006 (formerly Section 652 of The Companies Act 1985) which are available to limited companies. https://www.legislation.gov.uk/ukpga/2006/46/section/1003

There are many websites that state that you can’t dissolve a company with debts. This is incorrect.

There is no legislation which says that you can’t dissolve a company that has debts. The official guidance from the government website states that you must tell creditors, not that there should be no outstanding debt.

Therefore, you can dissolve a company with debts but the process is far more involved than simply sending a DS01 form to Companies House, crossing your fingers and hoping for the best.

Read – Is it Illegal to Dissolve a Company With Debts?

Ensure all stakeholders are informed

If you follow this route you should ensure that all creditors are informed and the financial position explained to them. You should also invite the creditors to petition for the winding up of a company.

You will also need to make sure that you inform all shareholders, directors, employees and trustees of any pension fund.

The benefit of Administrative Dissolution is that you have addressed your statutory duties of informing your creditors of the financial position and, as you have also reported the matter to the Registrar of Companies, you can’t later be personally fined by the Registrar for any later failure to deliver accounts and annual returns.

This process should only be used where other avenues have been exhausted however.

If there are any assets or funds in the company then a creditors voluntary liquidation should be used, the directors should also check to see whether they could be entitled to make a redundancy claim as this could potentially be used to cover costs.

What will happen when a Limited Company with a Bounce Back Loan is dissolved?

You may receive a letter from the Companies House called ‘Objection to Company Strike Off Notice’ if you try to strike off a company in debt. In most cases the objection usually lasts for 6 months and is then removed.

The Bounce Back Loan objections are taking longer because of the volume and the process the banks have to follow to show they have attempted recovery of the loan. We are seeing delays to the strike off process where a bounce back loan is involved and cases are sometimes taking over a year to complete.

In the event of a bounce back loan, the lenders to whom the Bounce Back Loan is owed are the triggers of objections. Even though these loans have been guaranteed by the government, the banks are the ones responsible for chasing defaulted loans.

Along with the original lender, HMRC, and BEIS are also placing objections. They have an office that works hand-in-hand with Companies House, and the office is tasked to monitor company directors that want to boycott tax liabilities by dissolving their companies in a fraudulent way.

Bounce Back Loan recovery process

There is a set process which has to be followed by all parties to ensure that there has been no fraudulent activity, this involves checking with lenders and in some cases instructing debt collection agencies to do other checks.

The banks have to show that they have done everything possible to collect the money owed before they can claim on on the government guarantee.

If the Bounce Back Loan has been used in the way it was intended, to support the company, then there will likely be no issues.

Another thing to take note of is that any act by directors to close a company must align with all statutory requirements to notify creditors. Before filing for closure, all company creditors, members, employees, and other relevant parties must be informed.

Can a dissolved company be reinstated by HMRC?

HMRC, or anyone else, has the power to reinstate any company via companies house, and they can do this anytime in the future.

As a director, it is important that you contact all creditors before making attempts to close your company to remove the likelihood of this happening.

However, if a company was dissolved with no assets then even if it was reinstated there would still be no assets and potentially makes the reinstatement process worthless.

Get free, no-obligation and impartial advice

If you want to get some free, no-obligation advice on which is the best route for closing your company then please call us on 0800 975 0380 or email [email protected]

We can look at which will be the best option for you and if liquidation is the right route rest assured one of our licenced insolvency practitioners will be able to help.