3 Mins
A question that we keep getting asked by Directors is “I can’t afford to repay my Bounce Back Loan, how do I get it written off?”
It seems that people misunderstand the implications of the “Government guarantee” thinking it means that if a company doesn’t have the money to repay the loan, it will be written off.
With repayments to start within 12 months of receiving the loan, all Bounce Back Loans should now be getting repaid. These are the Pay As you Grow options available:
- extending the repayments to over 10 years at a fixed rate of interest 2.5% (initial terms were 6 years)
- reducing monthly repayments to interest for a 6 month period (up to three times)
- one 6 month repayment holiday during the term of the loan
What if the company cannot afford to repay the loan?
Directors who are having difficulty repaying the loan should be speaking to an insolvency practitioner to assess the options. Insolvency could be an option. The insolvency practitioner will need to understand why the company has become insolvent and will look at what the bounce back loan was used for. If any money was drawn out for personal benefit then there may be a director’s loan balance due to the company (an overdrawn director’s loan account). This will need to be repaid to the company. We can agree a repayment plan with the directors over a period of time. Before reaching agreement we will assess the director’s wider financial position including assets and liabilities and income and expenditure.
An insolvency practitioner has to investigate the affairs of the company and part of this is whether the company was entitled to the funds and what the funds were used for. If there was false information on the loan application or the loan was used for personal benefit, this could result in the director being disqualified.
Can I strike off/dissolve a company that has an outstanding bounce back loan?
We also get asked whether a liquidation can be avoided by applying for the company to be struck off and dissolved. When applying for a strike off, notice must be given to all the outstanding creditors. This will include the bounce back lender. It’s likely that the lender will lodge an objection with Companies House which will stop the striking off process. Not giving notice can mean a fine and possible prosecution.
If there are no objections, the company may be dissolved but this may not be the end of the matter, Since February of this year, The Insolvency Service has had powers to investigate the affairs of dissolved companies. Companies that have been struck off with an outstanding bounce back loan are a focus. A director of a dissolved company can still be disqualified and if the loan was obtained fraudulently or used for personal purposes then The Insolvency Service can require it to be paid by way of a compensation order. The Insolvency Service is actively targeting companies that have been struck off by directors with outstanding bounce back loans. Recently, one director was jailed for 2 years for fraud.
What happens to a Bounce Back Loan when a company enters insolvent liquidation?
The liquidator will notify the bank and deal with any correspondence in relation to this. The loan will rank alongside the other unsecured creditors and if there is a dividend available to the unsecured creditors they will receive this during the liquidation. The lender can then rely on the government guarantee. The liquidator will investigate the affairs of the company prior to the appointment of the liquidator and if the bounce back loan application was fraudulent or the monies were withdrawn and not used for business purposes this may lead to the director being disqualified and having to make a payment to the liquidator.
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