Bounce Back Loans and Personal Responsibility

When advising directors’, we are commonly asked “Am I personally liable for a Bounce Back Loan?”.  The short answer is no, you cannot be held responsible for a Bounce Back Loan where the funds have been used correctly. 

The government provided 100% security to lenders for loans obtained through the Bounce Back Loan Scheme and this meant company directors were not required to provide a personal guarantee.  Therefore, responsibility for repaying the loan remains solely with the company. 

In this article we discuss what happens to a Bounce Back Loan when a company is insolvent, and who could be held liable in the event of company liquidation.

What was the Qualification Criteria for Bounce Back Loans?

Businesses were required to confirm that they had been adversely impacted by Covid-19 and that the business was not in financial difficulty before 31 December 2019.  Eligible businesses could then borrow up to 25% of their annual turnover, capped at maximum of £50,000.  

The loan must have been used to bring an economic benefit to the business.  That could be by boosting the company’s cash flow or paying overheads.  The loan should not have been used to benefit the company directors personally by increasing salaries, paying dividends or paying off the balance of loan accounts.

When can a director be held personally liable for a Bounce Back Loan?

The company must be able to demonstrate that a BBL was properly applied for, and that funds were not used personally by directors or otherwise used in a way which did not provide any benefit to the business.

Where this is the case, and the company enters liquidation, the Bounce Back Loan will become an unsecured debt.  In accordance with the guarantee provided by the Government, the bank will firstly demand repayment from the insolvent company, and where this is not possible, it will rely upon the guarantee provided.  Liquidation of the company means the end of the BBL liability.

However, if the BBL funds have not been used correctly, company directors can face personal liability in relation to any misconduct.  If your company received a Bounce Back Loan and you are concerned about they way in which the funds were used, you should seek advice from a Licenced Insolvency Practitioner to understand your position.

What options do I have if my company cannot pay its Bounce Back Loan?

Company Rescue

If the business is viable then it may be rescued either via a Company Voluntary Arrangement (CVA) or Administration. 

A CVA is a legally binding agreement between a company and its creditors, in which creditors are paid all or part of the debt over an agreed period.  Subject to approval, a CVA could allow the company to continue trading, whilst making affordable payments to its unsecured debts.  A Licenced Insolvency Practitioner is appointed to supervise the CVA, ensuring the company adheres to the terms of the agreement.

Administration is an option which can rescue a company but is more likely to save the core business and provide continuity to certain stakeholders.  A Licenced Insolvency Practitioner is appointed to manage the company’s affairs.  The process can allow the company to continue trading (in administration), could result in a sale of the business and assets.

Company Closure

In many cases you will need to consider whether the company should be wound-up (formally closed). Voluntary liquidation is an insolvency process formally known as Creditors Voluntary Liquidation (CVL) and is appropriate where a business has no viable future and must cease trading.  Once it is resolved that the company should enter CVL, a Liquidator will be appointed by the shareholders and creditors, and company assets will be sold to repay its liabilities. 

Help from Licenced Insolvency Practitioners

Keywood Group is a Licenced Insolvency Practice with offices in Birmingham and London.  Our team has over 20 years’ experience in dealing with company closure.  We pride ourselves on providing transparent advice on the implications of each option. 

If you would like any further information, please contact us for a no obligation chat.