What Will Happen to Your Bounce Back Loan if Your Company is Liquidated?

The Bounce Back Loan scheme

The Bounce Back Loan Scheme allowed businesses that met the criteria to borrow funds between £2,000 – £50,000 to cover expenses for buying equipment to protect customers and staff, and to trade through and recover from the difficulties caused by the pandemic and lockdowns.

But what happens if, despite the support put in place, the company struggles to stay open and eventually needs to be closed and liquidated?

Can I liquidate a limited company with a Bounce Back Loan?

Yes, even if your company has taken out a Bounce Back Loan it can still be liquidated.

This is because some businesses may still find it difficult to continue with trade during or after this turbulent period, even with the extra funds from the loan.

Recovery of the business may not be suitable or realistic if your company has become insolvent (the business can’t pay its debts as and when they fall due).

If you have taken out a BBL, you can use Creditors Voluntary Liquidation (CVL) to liquidate an insolvent company.

Find out more about liquidating a company

What if there aren’t any assets or funds to pay for a liquidation?

You may also be able to use Administrative Dissolution if there are no assets or funds available to distribute to creditors or pay for the liquidation costs which can usually be between £2500 and £6000.

Find out more about closing a company that has no assets

What will happen to your Bounce Back Loan if you liquidate your company?

In the event of a company being liquidated, the Bounce Back Loan turns into unsecured debt. An unsecured debt differs from a secured debt, where company creditors take over assets belonging to the company to secure their funds.

Unlike a secured debt, an unsecured debt, as well as their creditors, do not have substantial claims over assets belonging to the company.

As with other unsecured debts, during the liquidation the Bounce Back Loan will be written off.

Can you be held liable for an unpaid Bounce Back Loan?

No, not in most cases.

Usually, in the event of a company being liquidated, any personal guarantees signed by the director to secure funding become clear and the company director is personally responsible for those funds.

Directors, however, are not liable for an unpaid Bounce Back Loan because they are 100% guaranteed by the Government and not by the director themselves. When the debt crystallises, the issuing body, creditor, or bank will request that the Government repays the loan.

Nevertheless, this, as well as the short-term relaxation of wrongful trading laws, does not mean directors will not be held accountable for actions like abuse of the Bounce Back Loan or fraudulent trading.

The conduct of the company directors are still investigated during the liquidation process and any director involved in wrongful actions or misfeasance will be held personally liable.

To sum up

The Bounce Back Loan Scheme is designed to help struggling businesses with debts incurred because of the current global pandemic caused by the unseen enemy, Coronavirus.

Having a Bounce Back Loan will not stop you from closing or liquidating your company, and the loan will be classed as an unsecured debt.

As a director, the only way you will be personally liable for the loan is if you are found guilty to have abused the scheme or committed fraudulent trading.

Get free liquidation advice today

If your business or company is struggling with debts incurred due to the Coronavirus, irrespective of if you are receiving money through a Bounce Back Loan, contact us for free on 0800 975 0380 or email us on [email protected].

Our licensed insolvency practitioners with years of experience in business closure and recovery, and our friendly advisers can give you unbiased advice and recommendations for free. Contact us now to know how we can assist you.