The Bounce Back Loan Scheme (BBLS) offered quick access to emergency finance at a time when lockdowns and restrictions were causing chaos in many sectors.
The coronavirus pandemic took a devastating toll on the business world. No one could have predicted the duration of the pandemic and the full extent of the challenges faced by businesses.
The Bounce Back Loan Scheme (BBLS) offered quick access to emergency finance at a time when national lockdowns and ongoing restrictions were causing chaos in many sectors.
For many who took up the financial relief, this 12-month grace period is ending and loan repayments will be expected.
What happens to a Bounce Back Loan if a company is struggling?
The company is fully liable for the repayment of the Bounce Back Loan. The guarantee offered by the Government was only extended to lenders to encourage them to lend during the pandemic in order to avoid mass liquidation of businesses.
The Government loan guarantee ensures lenders receive repayment but recently, a worrying trend has developed. Rather than make the loan repayments, some business directors are choosing to close their business through a process called voluntary strike-off – which is intended for solvent companies, while their business still has unpaid debts.
Voluntary strike‐off and unpaid Bounce Back Loans
Voluntary strike-off, or voluntary dissolution, is a process whereby a solvent business closes without investigation by the Insolvency Service. For this reason, it is not suited for companies where unpaid debts remain.
Companies who cannot repay their debts should be undertaking the formal process of liquidation. Creditors Voluntary Liquidation (CVL) guarantees creditor interests and company directors have a responsibility to follow this process.
A legislative loophole was allowing company directors to apply for voluntary strike-off and for that application to be processed if no objections were forthcoming. The Government is set to clamp down on this with new legislation.
New legislation to prevent voluntary strike‐off
New legislation brought in by the government will dissuade company directors from applying for voluntary strike-off and instead opt for formal liquidation for their companies if required.
Formal liquidation is not the only option for struggling businesses, an insolvency practitioner will be able to assess the situation and consider the range of rescue and recovery measures on offer. For example, it may be possible to negotiate with creditors and formalise a longer-term repayment plan so closing business is not always necessary.
By closing the loophole, companies with an existing unpaid Bounce Back Loan will be investigated by the Insolvency Service if they apply for voluntary dissolution just as they would if they followed the formal liquidation process.
Creditors’ Voluntary Liquidation and unpaid Bounce Back Loans
The liquidation process requires all company assets to be sold on to pay back creditors. An investigation is launched and action can be taken if a director is found to have failed in their statutory duty. This action can include disqualification under the Company Directors Disqualification Act (CDDA) for up to 15 years and personal liability if the director is found to be guilty of wrongdoing.
Banks will be encouraged by Government to object to applications for voluntary strike-off where a Bounce Back Loan remains unpaid. The legal duty of a company director when faced with these circumstances is to follow the Creditors’ Voluntary Liquidation process.
Seek professional advice if your company is struggling and you are unable to pay back your Bounce Back Loan. A specialist will be able to advise the best route to take for your circumstances, minimising the financial loss to creditors and to your professional reputation.
If you are struggling with repayment of a bounce back loan and wish to seek confidential advice from an expert, contact Voscap today on 020 7769 6831, or email team@voscap.co.uk, to speak to one of our business recovery specialists.
