Can I close down my business with an outstanding bounce back loan?
What would it feel like to be the last business to close down because of the Covid-19 pandemic?
There’s nothing to stop it entering an insolvency process and ultimately being rescued and restructured but it would somehow feel sadder. Especially given the unprecedented levels of support available to businesses throughout the lockdown.
Even that scenario would be better than what’s facing a number of businesses that could otherwise trade their way back to profitability but are unable to because of the debt accrued from bounce back loans or other support measures they accessed.
They did everything they could, have explored all the scenarios and options and understand that closing the business is the best way forward for directors and creditors alike.
But they have this additional debt holding them back – the very debt that was designed to support them through the crisis in the first place.
Fortunately, there is a way forward for them.
Any business owner or director that is asking themselves the question “how do I close my company down?” needs to understand the difference between the various methods of closure.
The financial position of the business will primarily determine which method is most appropriate for closing it down.
A solvent business that wishes to close could choose dissolution or striking off.
It’s a relatively simple procedure that sees its creditors paid in full before the remaining proceeds are disbursed among shareholders and the legal formalities required for closure are completed.
Attempting to dissolve or strike off a business, while unable to pay off the debts is not only a waste of time but it could land directors in serious legal trouble – as well as being expensive.
The only feasible way for a business with bounce back loan or other debts to close down
would be through liquidation – a Creditors Voluntary Liquidation (CVL) to be precise.
In a CVL, a licensed insolvency practitioner is appointed to arrange, organise and then sell the assets of the business. They then use these funds to repay creditors in their correct legal order before finally closing the company down.
Any remaining debts are usually written off and the directors are then freed to begin another phase of their working lives.
Usually if you borrow from a bank they would ask for some security against your borrowing.
This would either be in the form of property the business owns or other assets it could put up that would then be at risk of sale to repay this debt in the event of insolvency.
Even though the bounce back loan is supplied through a bank or other approved lender, it is actually an unsecured debt.
The loan is 100% guaranteed but by the government so this is effectively the bank’s security. If the borrowing company defaults on the arrangement for whatever reason then the bank will ultimately pursue the government to be reimbursed for its funds.
The government in turn would then become a creditor of the insolvent business but because there is no security given by the BBL, they would be classed as an unsecured creditor and would be paid later than other secured creditors and HMRC who hold a higher priority.
Ultimately, owing a bounce back loan will not stop you from closing your company, if you decide to choose liquidation.
When Chancellor Rishi Sunak announced the various support measures a year ago he said: “We won’t be able to save every business” and sadly, he’s been proven correct.
The strain of trying to trade and make a profit in the hardest circumstances imaginable has just been too much for a lot of otherwise, good viable companies.
Their owners and directors have done everything right – everything they could possibly do including accessing support quickly – but even this might not have been enough.
If your business has fallen short and you’re worried about a bounce back loan or other debt holding you back and stopping you from moving forward as a business or an individual – get in touch with us.
We can appraise your situation and advise you on the best way forward – whether it’s liquidation or another way if we feel there’s a realistic chance of your company being able to recover.
We’ll be honest and up front with you but the final decision will be yours. Choice being the only thing any of us really does control.