The feedback we got was great but it also made us realise that there was one important point we didn’t address directly. That is, can lenders pursue business owners or directors for repayment if the business is dissolved?
We’ll answer this and other Bounce Back Loan company liquidation questions in this article.
When the chancellor Rishi Sunak announced the bounce back loan scheme (BBLS) back in 2020, not even he could have imagined it would be as popular as it proved.
Being able to borrow between £2,000 and up to 25% of their annual turnover with a hard limit of £50,000 at a fixed low interest rate of 2.5% after a year’s interest free period was a fantastic deal for many.
Being a government-backed bank loan gave it added security along with the fact that it didn’t require any security from borrowers to gain access.
The overall total lent out before the scheme closed was £46.53 billion which encompassed some 1,531,095 bounce back loans supplied to eligible small businesses and their larger counterparts across the UK.
This number also includes bounce back loans which had subsequently been “topped up” - to take overall borrowing to the hard limit of £50,000.
There were an additional 101,666 of these approved which increased overall borrowing by £0.91 billion.
It’s true that the loans were guaranteed by the government but lenders must still try and claim repayment from the borrower.
Banks will only be able to call on their government guarantee if they have taken every effort to recover outstanding debt themselves.
Now the first bounce back loan repayments are coming due, which means that unless an extension has been granted, lenders will be ready to begin reclamation actions for missed repayments.
Many companies, through no fault of their own, will not be financially viable as a result of the coronavirus pandemic and the subsequent year of lockdowns. They will have begun or completed the process of closing down the business - which formally is known as dissolving or striking off.
It’s one of the most efficient ways of closing a business down but is only meant to be used in certain circumstances.
Creditors (including banks) can object to a strike off on the basis of outstanding debt.
Already we are seeing high numbers of strike off suspensions, as many companies opt for dissolution whilst still having an outstanding bounce back loan. Banks and HMRC are wary of any companies slipping through the net, and have geared themselves up to stop companies from closing down using the dissolution process whilst they still have outstanding debts.
All company strike offs are advertised in the Gazette, and the banks and HMRC utilise software to check the proposed lists and cross reference them against the tax and their lending records. Where a company has a bounce back loan, unfiled accounts or tax arrears, the banks or HMRC are filing objections suspending the strike offs, leaving the companies in limbo.
The alternative is that the company looks at liquidation instead.
Liquidation is overseen by a licensed insolvency practitioner rather than the company directors themselves, and ensures that the company is legally closed down in a framework that the company’s creditors are bound into as well.
Once a company enters liquidation, the banks are able to call upon the Government guarantees and HMRC are able to close their tax files.
Once the liquidation process is completed then the business is finally closed down, its debts are settled or the remainder written off and the owners and directors can move on with their lives and careers without putting time and energy into a business that ultimately couldn’t be saved.
The government have just announced that a new bill that will allow HMRC and The Insolvency Service to go after directors who dissolved their companies improperly leaving outstanding debts, including bounce back loans or tax.
The Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill will allow retrospective investigation and action to be taken against directors and can lead to disqualification and personal liability if they are found to have dissolved their company with outstanding debts.
This means that for the first time, authorities will have the power to investigate company dissolutions and strike offs retrospectively to make sure they were completed properly and punish directors of those that weren't.
If your business is already struggling with its debt obligations including a bounce back loan then you should arrange a free initial consultation with us as soon as you can.
Our experienced team will quickly appraise themselves of your circumstances and be able to offer clear advice on what courses of action are available to you.
They can then work with you on how to achieve the optimum outcome both for you, your business and your creditors.