Businesses across the country took advantage of the Government’s Bounce Back Loans when they were unveiled to counteract the Covid-19 lockdowns – but many of those companies are still struggling today.
If you are the director of a Limited Company in financial difficulty an option may be to dissolve the company with the help of expert support so it can be struck off the Companies House Register.
Can I Dissolve a Company with a Bounce Back Loan?
Yes, you can dissolve a Limited Company with a Bounce Back Loan. However, it is a complicated process, and your best bet is to seek expert support to help you do it legally.
The Bounce Back Loan Scheme (BBLS) was introduced in May 2020 to enable smaller businesses to access finance quicker during the coronavirus pandemic.
More than two million businesses applied for the loan, with over one-and-a-half million being accepted.
The BBLS was designed to help small- and medium-sized companies to borrow between £2,000 and up to 25% of their turnover up to a maximum loan of £50,000.
The Government guaranteed 100% of the loan, and there were no fees or interest to pay for the first year. However, after 12 months, the interest rate rose to 2.5% per year.
The length of the loan is six to ten years, but there is the option to repay early without incurring a fee.
But despite the help of a loan, many directors are finding it has not been enough to ward off the deepening financial problems they have experienced since the onset of the Covid-19 pandemic.
What is the Safest Way to Dissolve a Limited Company with a BBL?
Any Limited Company can be closed – whether solvent or have debts like a Bounce Back Loan. The question is always the best route to closure, whether it is legal, and whether your responsibilities as a director have been fulfilled.
The choice is often between dissolving the company or selling assets to raise funds to pay creditors – a process called liquidation.
The most cost-effective way to close a Limited Company is via dissolution. This is relatively quick and easy to achieve when a company is solvent. When it has debt, dissolution is much more complex but not unachievable.
It is still a legal process and compliant with the Companies Act 2006, but careful steps need to be followed that experts such as Future Strategy can help you with.
The first step is to establish with an expert if dissolution is possible. This is often the best option if a Limited Company does not have any assets that can be liquidated or has insufficient funds in the company to pay the fee.
If a company does have assets and chooses to work with a licensed insolvency practitioner to achieve liquidation, this process is called a Creditor’s Voluntary Liquidation (CVL). It can be costly, though, with fees often starting at £5,000.
What Happens When You Dissolve Your Limited Company with a Bounce Back Loan?
If you try to dissolve your Limited Company with a Bounce Back Loan, Companies House will likely contact you.
This comes in the form of an objection letter generated by the creditor for directors who attempt to strike off a Limited Company in debt.
If HMRC deems that your Limited Company is insolvent and you cannot pay your debts on time, there are several procedures you must go through first which are set out in the Insolvency Act 1986.
If you have obtained and used your BBL in the way it was initially intended and in accordance with the bank’s criteria to support your Limited Company, there will be no issues.
However, if a creditor believes your Limited Company has not been closed down through the correct channels or can provide evidence to back up another reason for arguing against closure. In that case, they can appeal for your Limited Company to be restored to the Companies House register.
This would allow them and other outstanding creditors to chase your Limited Company for any unpaid debts.
This is why it’s best to work with experts to achieve dissolution – to avoid uncertainty and scenarios like the above.
Can Your Dissolved Limited Company be Reinstated by HMRC?
HMRC do have the power to reinstate your Limited Company if they believe it has been incorrectly struck off with Companies House.
It’s crucial that you don’t ignore any debts before attempting to dissolve or strike off your Limited Company. That includes the Bounce Back Loan.
And if HMRC finds evidence of alleged serious fraud or negligence, directors could be contacted about it up to 20 years later.
Final Notes on Limited Company Dissolution and Bounce Back Loans
BBLs were set up by the Government in an unprecedented time for business – to support companies through the most challenging economic times.
But sadly, many directors have found themselves in a similar situation to when they decided to take out the loan and still face an uneasy financial future today.
Closure may be your best option, but it’s important to note that your outstanding Bounce Back Loan amount can be treated like any other debt.
Dissolution rather than liquidation may well still be possible, but you must choose to use expert help to navigate the process.
Contact the Future Strategy team today if you need help establishing whether this is possible or simply want advice on your outstanding Bounce Back Loan.
