We recently published a blog about how over half of UK disqualified company directors were struck off for bounce back loan fraud.
Most directors have no reason to worry as they took out their bounce back loans (BBLS) during the pandemic years in good faith and with every intention of repaying them but further economic issues including rising inflation, interest rates and a cost of living crisis means this might not be possible.
As we enter Autumn and the end of the year is suddenly weeks away rather than months, business owners with outstanding bounce back loan debt will be looking for how to solve a problem that was once seen as the ideal solution.
According to the National Audit Office (NAO) a total of £46.5 billion was paid out through 1,531,095 loans.
The majority (58%) were for the maximum amount of £50,000 while the average total borrowed was £30,000.
Over 10% of the amount borrowed (£4.9 billion) has most likely been lost to fraud and another £12.1 billion would be unlikely to be recovered. That’s £17 billion pounds that is not going into government coffers which explains why HMRC are being so active and energetic in chasing up all existing arrears.
Can I be made personally liable for bounce back loan debt?
The reason the BBLS was so popular for small businesses is that it had a number of favourable terms attached to it, especially compared to regular business loans.
One of which was that the government provides a 100 percent guarantee to lenders so in the event of a default, the lender could still claim back their capital from the central government. Recently the system has been refined so they have to show they have taken reasonable measures to reclaim money from lenders.
Because of the guarantee, this means that the director of a company taking out a BBLS product did not have to provide a personal guarantee, and if the company later failed, the lender would still get their money back from the government.
There is one exception to this – if it can be proven that the bounce back loan was obtained fraudulently or used for fraudulent purposes then the director will be made personally liable for covering any shortfall following the liquidation of the company. If they cannot afford to repay the loan then their personal assets may be at risk and they could be made bankrupt or even face criminal proceedings as a result.
Can I close my company with an outstanding bounce back loan?
The good news for the majority of law abiding, diligent directors that did everything properly when they took out a bounce back loan is that it is possible to close a business down, even if it has outstanding debts, including BBLS arrears.
A bounce back loan is considered as unsecured debt and following a formal method of closure such as a creditors voluntary liquidation (CVL), this and all other unsecured debt will be written off providing certain other conditions – such as no other personal guarantees or no fraudulent or criminal behaviour – are met.
During a CVL procedure, a licensed insolvency practitioner has to be appointed to arrange, organise and dispose of (sell) the remaining assets of the business. They then use these funds to repay creditors in their correct legal order before the business is formally and finally closed.
Directors are then free to follow their next professional venture and the next phase of their working careers without overhanging debt following them.
Alternatively, if the business is fundamentally viable and it’s only bounce back loan arrears and other historic debt that are stopping it from returning to profit then there could be alternative strategies available rather than closure.
A company voluntary arrangement (CVA) or an administration could allow the business to make changes and clear other sufficient debts to make bounce back loan repayments and generate enough profit to continue running the business as a going concern.
If your business is falling short after the unprecedented last few years you’ve faced and you’re worried that a bounce back loan or other debts are holding you back and stopping you from moving forward as a business or an individual – get in touch with us for a free initial consultation.
We can honestly appraise your situation and advise you on the best way forward in plain english. Whether closure through liquidation is the best option or if there’s another way if we feel there’s a realistic chance of your company being able to recover – we’ll tell you.
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. So get in touch today and start to take back that control.