Can I liquidate my Company with a bounce back loan?
If your Limited Company has received a bounce back loan and you haven’t repaid it and you are still in financial difficulties you may be wondering if you can close the Company down.
The simple answer is yes. The loan goes into the pot of unsecured debt and would only be repaid after the secured debtors are repaid. Normally this means if your Company has any assets or money in the bank these will be used to pay off the Inland Revenue, then loans before any suppliers would be paid.
The bounce back loan will be left unpaid until all the main debtors are paid off.
In a liquidation Banks are often considered as secured creditors with the loan secured against assets of the Company. However this is not the case with Bounce Back loans, as they are 100% backed by the Government. So if the Company is placed in liquidation, any of the loan not paid will be covered by the Government. Once the liquidation of the Company is complete any remaining loan will be written off.
All Bounce Back loans are guaranteed by the Government, so directors do not have to sign personal guarantees. Limited Companies are classed as legal entities, so all the Directors are protected by limited liability. This means that their personal assets are separate from those of the Limited Company. As no personal guarantees have been asked for or given, Directors cannot be held personally liable for repaying the loan.
There is an instance where the normal rules would not apply. For example, If a Bounce Back loan has been misused such as it has not been used to support the Limited Company financially, it has been used to support the Directors personal lifestyle or to pay off personal debts. Then it is possible the Liquidator could take the view that the Directors of the Company could be held personally liable to repay the loan. If you have any concerns, please contact us for a free confidential consultation.
If you are considering a liquidation for your Limited Company please talk to us, it’s a complicated and difficult process but we can help you through it and it is possible to have all the Company debts written off, close the Company and give you the chance to start again as a director.
To summarise:
An unpaid bounce back loan is a debt of the Limited Company. A Company that has a Bounce Back loan can be liquidated. As no personal guarantees have been signed or given, a director can only be held personally liable for a Bounce Back loan if they have not used it to support the Company financially. If the Company goes through liquidation, the Bounce Back loan along with all the other Company debts will die when the Company is closed down.