The Bounce Back Loan Scheme has been a ray of hope for thousands of companies in the midst of the Covid-19 pandemic.
But what if the injection of cash isn’t enough to navigate your business through the recession that has gripped businesses across the UK?
The loan scheme allows you to borrow between £2,000 and £50,000 to cover expenses related to Covid-19 and has been a huge boost for businesses. But some are still struggling and may need to start considering the possibility of liquidation.
Can I liquidate my company if I have received a Bounce Back Loan?
You can still liquidate your company if you have taken out a loan. If you still find it difficult to trade because of the turbulent environment despite the extra support, you’ll still be able to use a Creditors Voluntary Liquidation (CVL) to liquidate an insolvent company.
While you’ll clearly want to recover your business if possible, if it’s insolvent then liquidation may be one of few realistic options.
What will happens to the Bounce Back Loan if I liquidate?
The loan will become an unsecured debt if you liquidate. This means creditors do not have substantial claims over assets belonging to the company – unlike a secured debt.
Crucially, if the loan is unpaid you are NOT held liable.
This is because the loans are guaranteed by the Government, meaning it is the Government that will repay the loan when the debt crystallises. Whoever issued the loan will be able to approach the Government for repayment.
Usually, the company director would be held responsible, but not in the event of a Bounce Back Loan.
Does this mean I can take a Bounce Back Loan out and then close my company?
This does not mean that you can abuse the Bounce Back Loan system. Directors will still be held accountable for wrongful use of the loans despite the short-term relaxation of wrongful trading laws.
Fraudulent trading is something to take very seriously and directors should be reminded that their conduct is still investigated during the liquidation process and any director involved in wrongful actions or misfeasance will be held personally liable.
What if there isn’t any assets or funds to distribute in a liquidation?
You may also be able to use Administrative Dissolution if there are no assets or funds available to distribute to creditors or pay for the liquidation costs which can usually be between £2,500 and £6,000.
If you have taken out a Bounce Back Loan are your company is still struggling and you are forced to consider liquidation then this is still an option and the loan will be classed as an unsecured debt.
Directors should be wary that although they will not be personally liable for the loan, if you are found guilty of abusing the scheme you could be found guilty of fraudulent trading.
If you are struggling with debts caused by the Coronavirus pandemic, then contact the Future Strategy team. We can advise you on business rescue and recovery solutions and give you the best help and support on taking the next steps.