Bounce back loan debt – six months on
Back in March we were one of the first business and insolvency services to identify that bounce back loans arrears would be a sticky battleground for a lot of companies in the weeks and months ahead.
The most popular of which was called “Can I close down my business with an outstanding bounce back loan?”
Well a lot has happened in the past six months so it’s about time we brought the story up to date and see if our answer to that question has changed.
We advised directors and business owners of companies about the various methods and procedures available to them to close their businesses efficiently if that is the only realistic option for them.
The first prescient point we made six months ago was about company dissolutions or strike offs.
We tried to underline how this was only a viable route to closure for businesses that had debts but can realistically clear them within a 12 month window.
Since then, the government became so concerned about businesses using this method to try and close down inappropriately and avoid settling debts with their creditors, that they are creating new legislation to give the Insolvency Service additional powers to tackle this issue.
In the first six months of 2021 alone over 250,000 businesses were struck off the register which is even more remarkable because there was a suspension of voluntary striking off between January and March 2021.
The Insolvency Service are already publicising their recent success in winding up businesses that dishonestly or fraudulently obtained bounce back loans in the previous year.
Dave Elliott, Chief Investigator at the Insolvency Service said: “The bounce back loan scheme was made available to help support businesses during the pandemic.
“It’s outrageous that some directors have been trying to abuse this support, and the action we have taken shows we take this issue extremely seriously.”
Very soon, The Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill will specifically give the Insolvency Service a mandate and legal powers to hunt out directors who dissolved their businesses with outstanding debts including bounce back loan arrears.
One of these is the ability to retrospectively investigate their dealings and behaviour leading up to the decision to close in this manner. This is not limited to those closing in 2021 but will span up to two or three years.
The range of punishments include fines, disqualification from sitting as a director for up to 15 years and possibly most damaging, being made personally liable for any debts incurred by the business during this period.
Chris Horner, Insolvency Director with BusinessRescueExpert.co.uk said: “One reason why the government and Insolvency Service are taking decisive action now is because a lot of companies have tried to dissolve their business without good reason.
“We’ve had a lot of recent enquiries from businesses that have had their bank accounts frozen because they have an outstanding bounce back loan balance and have had a strike off notice advertised.
“This is a new development and shows how seriously authorities are taking the issue.
“We’ve been unwavering in our opinion that liquidation – probably creditors voluntary liquidation (CVL) but always entirely dependent on the individual circumstances – is almost certainly the best option for a business with bounce back loan arrears that can’t be repaid but still wants to close down.
“We’ve consistently said, both at the time and even more so now, that the best thing for any director worried about any aspect of investigation, not being able to meet all their obligations when they come due or if they simply want to move onto another phase of their career is to get in touch with us and arrange some impartial, professional advice.”
Six months was always a long period of time but recently it feels even longer.
In March this year we assumed that Covid-19 might be in the mirror behind us and social distancing, masks and lockdowns would firmly be a thing of the past.
We hoped that the economy would be robust and approaching full capacity if not exceeding previous demand as pent-up purchasing passions were unleashed by eager consumers that in turn would buoy businesses and return them to profitability relatively swiftly.
Even struggling businesses would be able to enjoy a modicum of recovery and while some businesses would still close down, they could do this orderly and efficiently.
This might be the scenario in six months time in March 2022, when the restrictions on winding up petitions for under £10,000 or less is lifted, but it might not.
Even if the general economy is on an upward trajectory by then, individual sectors might still be struggling to recover or even having a worse 2021 than 2020 – which seemed unthinkable six months ago.
The one constant than any company director or business owner can rely on is the availability of impartial professional advice.
We continue to offer a free initial consultation to anybody that needs business restructuring assistance or advice on where their company might be heading.
One thing that rarely changes is that the sooner advice is sought and received, the more options and leeway a business has to act.
Leaving things until the last minute is never recommended, especially in the current climate – as it might already be later than you think – although hopefully not too late to make the most important decision and get in touch in the first place.