Is a director liable if a company can’t repay a Bounce Back Loan?

The Bounce Back Loan Scheme (BBLS) has helped businesses around the UK to survive the financially devastating effects of coronavirus, and forms part of the extensive set of supportive measures taken by the UK government since the pandemic began.

With repayments on the first tranche of loans due in spring 2020, however, what happens if you can’t repay? Before we look at the potential implications for directors of not repaying a Bounce Back Loan, what are the important features of the scheme?

How does the Bounce Back Loan Scheme work?

The Bounce Back Loan Scheme was particularly notable for being wholly backed by the government. A 100% guarantee was provided to encourage lending, and support a business community devastated by the national lockdown and ongoing local restrictions.

Businesses don’t have to make repayments for 12 months from the start of the loan, and the government also pays the loan interest and charges during this timescale. The 2.5% interest rate fixed for up to six years has also allowed SMEs to deal more effectively with a situation that might otherwise have led to their closure.

The coronavirus pandemic continues to cause significant disruption, however, and many businesses are still struggling to survive. So what happens if your company can’t repay a Bounce Back Loan – are you liable for any outstanding amounts as a director?

Are directors liable for non-payment of a Bounce Back Loan?

Incorporated businesses are legally separate from their director(s), which means that in most cases, you can’t be held liable for debts of the company. Furthermore, Bounce Back Loans are unsecured and don’t require a personal guarantee from directors.

If the company couldn’t continue in business, therefore, and had to enter into Creditors’ Voluntary Liquidation, you and other directors wouldn’t be liable for the outstanding loan amount.

This position can change, however, if the company is liquidated and you’ve failed to fulfil your statutory obligations as a director. This might involve the misallocation of funds, for example, fraudulently obtaining borrowing by providing false information, or failing to place the interests of creditors first in insolvency.

The legal separation of a company and its directors is commonly described as the ‘veil of incorporation,’ but this can be lifted under specific circumstances, such as where creditors’ losses have increased or wrongful/fraudulent activity is uncovered.

What are the ramifications of personal liability for a Bounce Back Loan?

A liquidator’s investigations can go back several years, and if misconduct or misfeasance has led to the company’s decline, the office-holder can reverse transaction as necessary, or recover funds that have been misapplied.

As a director, you could potentially face disqualification from office for 2-15 years. Personal liability for the outstanding Bounce Back Loan sum, as well as other company debts, is also a possibility.

The liquidator may pursue legal action against you, which could ultimately risk your home and other personal assets. So what should you do if you fear you may be held liable for repayment of a Bounce Back Loan or other debts of your company?

Seek professional advice

UK Liquidators is the UK’s largest firm for company liquidations, and can provide trustworthy unbiased advice. It’s important to know that voluntarily placing your company into liquidation when there’s no chance of business rescue is better than waiting for a creditor to wind it up.

By liquidating voluntarily you’re prioritising your creditors and adhering to UK insolvency laws, which helps to protect you from future allegations. Our partner-led team can provide tailored guidance if your company can’t repay a Bounce Back Loan. Please get in touch to arrange a free, same-day consultation - we operate an extensive network of offices nationwide.