Bounce Back Loans When a Company Cannot Pay
Understand the difference between an unpaid Bounce Back Loan and possible misconduct when a company is insolvent.
Published by Hedwyn Ltd. General information for directors of companies registered in England and Wales.
Does this sound familiar?
Your company still owes a Bounce Back Loan but can no longer maintain the repayments. You are unsure whether the government guarantee protects you personally. You may also be worried about how the application was made or how some of the money was used.
The short answer
A company's inability to repay a Bounce Back Loan is not, by itself, proof of director misconduct. The loan remains a company liability and the lender may claim under the government guarantee after following the applicable process.
A different issue arises if information on the application was false, the company was not entitled to the loan, funds were used for personal benefit rather than the economic benefit of the business, or dissolution was used to try to avoid repayment. Those matters can be investigated.
What this could mean for the company
The loan should be included in the company's creditor and cash-flow information. It must be considered alongside tax, suppliers, employees and other liabilities when assessing whether the company can continue trading or requires a formal insolvency procedure.
What it could mean for you personally
The scheme did not ordinarily require personal guarantees, but that does not protect a director from the consequences of misconduct. The Insolvency Service states that misconduct can result in company winding-up, director disqualification and a compensation order.
The outcome depends on the application, eligibility, use of funds, records and later conduct. Do not assume that ordinary business expenditure was improper, or that every questionable transaction has the same consequence.
What may be urgent
- Preserve the application and lender correspondence
- Reconstruct where the funds went using bank records
- Record any repayment arrears or lender deadline
- Get advice before applying to dissolve the company or moving money
What to avoid
- Assuming the loan disappears if the company is struck off
- Altering or recreating records after the event
- Repaying connected parties without considering other creditors
- Describing personal withdrawals as business expenditure without evidence
Information to gather
- Loan application and declarations
- Company bank statements covering receipt and use of funds
- Invoices, payroll and other supporting records
- Repayment history and lender correspondence
- Board records and the company's financial position at application
Options that may be considered
Where the borrowing and expenditure were proper but the company cannot repay, the position may be addressed through the same rescue or insolvency options as its other debts. If eligibility, application statements or use of funds are in doubt, obtain independent legal and insolvency advice before deciding what to do.
What happens next?
Read I am worried about a Bounce Back Loan, review directors' duties, or complete the confidential assessment.
Authoritative sources
- Insolvency Service: Bounce Back Loan factsheet
- Insolvency Service: investigations and enforcement
- Insolvency Service: options when a company is insolvent
This guide provides general information for directors of companies registered in England and Wales. It is not legal, financial, accounting or insolvency advice.
This guide is general information, not legal, financial, accounting or insolvency advice. See how our content is prepared.