Can I close a limited company with a Bounce Back Loan?
Closing a limited company with an outstanding Bounce Back Loan (BBL) is possible, but it requires a formal insolvency process like a Creditors' Voluntary Liquidation (CVL). Attempting to dissolve or strike off the company without dealing with the outstanding Bounce Back Loan is not appropriate and can lead to complications.
Are directors liable for Bounce Back Loans following liquidation?
Bounce Back Loans have been one of the most popular emergency finance options for businesses which may have faced financial decline due to coronavirus. With no repayments or interest to pay for 12 months from commencement, and a low fixed interest rate of 2.5%, Bounce Back Loans offered some certainty when business cash flow was in dire need of support.
A key feature of the Bounce Back Loan Scheme (BBLS) was the government’s guarantee to repay lenders 100% of outstanding loan amounts if their borrower went bust. This offered lenders confidence to sanction loans in the unprecedented circumstances of the global pandemic, while also meaning company directors were not required to provide a personal guarantee for borrowing under the Bounce Back Loan scheme.
Concerned about National Living Wage and NI increases?
With the rates of both National Living Wage and employer National Insurance Contributions increasing in recent years, this additional cost of employing staff has added more pressure onto already squeezed cash flows. If you are worried about the impact this is having on your company's finances, talk to the experts at UK Liquidators. As licensed insolvency practitioners we can explain your options and help you plot a way forward. Call today on 0808 253 9878.
Businesses remain liable for unpaid Bounce Back Loans when they go bust
The guarantee only applies to lenders, and borrowing businesses continue to be fully liable for repayment. The government guarantee is being increasingly called into play, however, due to the ongoing financial difficulties that businesses are experiencing.
A further problem for the government is that some directors have used an unofficial method of closing their company that’s only intended for solvent businesses known as ‘strike off’. For this reason, new legislation has been brought in to limit the way in which businesses can close down if they’re running an outstanding Bounce Back Loan, or owe tax to the Treasury.
It effectively extends the penalties that are already in place when companies undergo formal liquidation, and when directors are found to have committed some form of wrongdoing.
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What happens when a business goes bust with an outstanding Bounce Back Loan?
When a company closes down it may eligible to do so in an unofficial manner via a process known as voluntary strike-off or company dissolution. Directors who initiate voluntary strike-off must inform all creditors of their intention, and crucially, the business must be solvent.
This form of business closure is inexpensive, and has provided an attractive method of closure that’s been incorrectly used by some directors – in other words, closing their business down when it has gone bust.
The government aims to make the procedure less accessible from now on. They’re subjecting directors to investigation by the Insolvency Service if they use voluntary dissolution when an outstanding Bounce Back Loan exists.
It brings the process into line with formal liquidation, whereby directors’ actions leading up to closure are scrutinised for misconduct or other wrongdoing. Banks are also being encouraged by the government to object to applications for strike-off by companies with unpaid Bounce Back Loans.
Start your online liquidation today
If you have decided liquidation is the right option for your limited company, you can take the first step and begin the process online using our online portal. Starting the process is quick, simple, and can be done at a time that suits you. Your information will be submitted to your local UK Liquidators insolvency practitioner who will be with you every step of the way. Click here to start your company’s liquidation online.
What should you do if your business cannot repay its Bounce Back Loan?
If your company is unable to repay its Bounce Back Loan, it’s crucial to seek licensed insolvency help as soon as you’re aware that your business is struggling. You may be able to avert closure altogether using the broad range of supportive insolvency solutions available in the UK.
If the business cannot be saved, acting quickly in seeking professional advice from a licensed insolvency practitioner demonstrates your intention to place creditor interests first – a key legal duty for directors of insolvent companies.
Penalties for misdemeanours can be severe for company directors, and include personal liability for business debts. Disqualification is also a possibility, and could extend for up to 15 years.
UK Liquidators specialises in helping directors close down their companies in an orderly manner, and can advise you on what happens to your outstanding Bounce Back Loan. We can also provide professional advice if you’ve already closed your insolvent business down using voluntary strike-off.
Our partner-led team work from offices throughout the country, and can offer you a free, same-day consultation to quickly establish your best options.
Jonathan Munnery
Insolvency & Restructuring Expert | 20+ Years Insolvency Experience
Jonathan is a Partner at Real Business Rescue and member of both the Insolvency Practitioners Association (MIPA) and The Association of Business Recovery Professionals (MABRP). Jonathan has over 20 years’ experience guiding directors through CVL and MVL processes, helping them understand their options and navigate financial distress with clarity and compassion.
IPA Member MABRP Member IPA Regulated
“ Directors often wait too long before seeking advice. The earlier you call, the more options remain available to you — and the better the outcome for everyone involved. ”
Jonathan is a Partner at Real Business Rescue and member of both the Insolvency Practitioners Association (MIPA) and The Association of Business Recovery Professionals (MABRP). Jonathan has over 20 years’ experience guiding directors through CVL and MVL processes, helping them understand their options and navigate financial distress with clarity and compassion.
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