Everything directors need to know about bounce back loans and liquidation

None of which are going to make the business of just doing business any easier. 

With less than 12 weeks to go until 2022 is upon us, this might be the most critical trading period ever for some companies. 

It might very well be make or break for some businesses. If they don’t have a bumper Autumn and Christmas trading period then the new year might start with them looking at closing their business down for good and dealing with their outstanding debts and creditors. 

This also includes bounce back loans that might have been taken out to support the business during the height of the pandemic and lockdown but have now come due and in many cases are overdue. 

So we’ll answer some of the more frequent questions we’ve been getting from directors looking to restructure or close their businesses but are reluctant to proceed because of their bounce back loan debt. 

Will directors be personally liable to repaying bounce back loans in liquidation?

Because the bounce back loan was designed to have inherent flexibility and be potentially used in several different but legitimate ways by businesses, it was not designed for a single purpose or use. 

Primarily this was to provide an economic benefit to the business during the pandemic which could include replenishing stock, paying staff wages (separate from staff that have been on furlough), buying new machinery or bolstering its cash flow position either through paying down debt or building their savings.

Forthcoming law changes included in The Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill, while specifically being aimed at directors that have tried to dodge their legal responsibilities, might confuse and scare those business owners that have been doing their jobs and now think they might be held responsible for outcomes outside of their control. 

The new bill will let the Insolvency Service specifically target and pursue those directors who acted either unethically or illegally.   

The main measure sees the Insolvency Service given retrospective powers to investigate the directors of closed and struck off companies and how they acted in the days, weeks and months before their dissolution. 

Any director or business owner that can demonstrate how the money was spent on legitimate company activity will have little to worry about from the Insolvency Service. 

If the money was used to fund personal purchases or was given to family members for example then they could very well find themselves being made personally liable for the outstanding amount if the business can’t repay it’s bounce back loan arrears.

Do I have to liquidate my business if I can’t pay back the loan straight away?

If a business could have a viable future but can’t meet all its obligations at once including bounce back loans this doesn’t automatically mean that the company has to go into liquidation.

If HMRC are one of the creditors then a Time to Pay (TTP) arrangement can be negotiated. 

This is a formal payment plan usually spanning 12 months which is at an affordable level for the company to make and keep up. 

Of course depending on the size and types of the debts and creditors a more formal insolvency process like an administration or Company Voluntary Arrangement (CVA) might be more appropriate.

Is liquidation possible with a bounce back loan? 


A business with an outstanding bounce back loan that it has no realistic chance of repaying can still be closed down or liquidated but only if it follows a certain procedure. 

If the business becomes insolvent then the outstanding balance will be included in the process alongside any other unsecured debt and treated the same way. 

A Creditors Voluntary Liquidation or CVL will usually be the method the licensed insolvency practitioner will use to progress closing down the company. 

They have several legal tasks to fulfill while they complete their duties including compiling a report on directors actions leading up to the insolvency and identifying which creditors are owed what amount and how much any existing assets can be realised for to go towards paying off these debts.

Directors will not personally have to repay any of these company debts unless they have entered into personal guarantees to obtain them or if the Insolvency Service subsequently discover cause for further punishment based on their investigations. 

The next few months might raise more questions than answers for a lot of business owners and directors struggling to keep their firms on an even keel.

We’d like to think that we can help them find the answers they’re looking for no matter what conundrums they have to cut through. 

Our free initial consultation is the starting point for them to work through their specific and unique situations with one of our team of experienced, expert advisors. 

We can then work together to come up with a comprehensive package of options and solutions that can begin to be implemented straight away to bring about the necessary changes needed. 

Get in touch with us today and we’ll get busy making sure that tomorrow will provide some answers you’ll like.