Yes, you can close your business if you have a bounce back loan. There are no specific guidelines on terminating a business with an outstanding bounce back loan, although the involved banks do not write off bounce back loans.
On the surface, a bounce back loan for your limited company should exempt you from personal liability. If you have taken on personal liability (by providing a personal guarantee) or acted illegally after knowing or should have known your company was insolvent, there may be serious personal financial and other implications when shutting any limited company
If you believe you can close your business after using a bounce back loan for your personal gain and believe that by doing so, you can evade HMRC or other types of inspection, you are very likely making a serious error.
We are insolvency practitioners and small business advisors with extensive expertise. We would be pleased to discuss any issue or worry you have regarding closing your business and the Bounce Back scheme with you in a fully confidential manner.
If you took out a Bounce Back loan with the hope of your company surviving the pandemic, used the money for legitimate company related reasons, only to realise your business is now insolvent, there are no extra penalties, rules or laws. Find our below what you should do
Read on to find out how this works, the process, and any potential consequences.
If I have a bounce back loan, can I close my business?
Closing a limited company that has a Bounce Back Loan entails navigating a structured process to ensure all obligations are met. Firstly, it’s essential to notify all relevant parties, including Companies House and HM Revenue and Customs, about the intention to wind up the business. T
The outstanding Bounce Back Loan must be addressed in this process, typically by repaying the remaining balance in accordance with the loan agreement. The company’s assets may need to be liquidated to settle any outstanding debts, including the loan.
Engaging with a licensed insolvency practitioner or seeking professional advice can assist in fulfilling legal requirements and managing the closure smoothly, allowing for a comprehensive resolution while minimizing any adverse consequences.
The lender will require some type of insolvency process in order to close your business, so the bank or lender can claim on the government guarantee.
What happens to a Bounce Back Loan after company is insolvent?
When a company becomes insolvent, the Bounce Back Loan will be treated as any other unsecured debt. The loan will be included in the list of creditors to be paid out of the company’s assets, if any, during the insolvency process. The exact order of priority for the distribution of assets will depend on the specific circumstances of the insolvency.
In general, secured creditors will be paid first, followed by priority unsecured creditors, and finally, unsecured creditors. It is important to note that if the company is unable to pay back the Bounce Back Loan, the government will step in to repay the lender.
Possible risks of closing a company with a bounce back loan
There are 3 main risks to directors personally when closing a company with a bounce back loan. 2 of these are no different whether your business took out a bounce back loan or not. They are :
- Other business loans, such as borrowings other than the bounce-back loan, were personally guaranteed by you. The lender who benefits from the personal guarantee may try to enforce it if the firm goes bankrupt.
- You behaved in a way that was contrary to your legal obligations in the time before insolvency, such as trading while bankrupt, engaging in transactions at a loss, or engaging in any other type of financial malfeasance.
- It is obvious that you received the bounce back loan through deception or fraud, or by using the funds for your own profit instead of the business.
Ironically, continuing to operate your company even if it is insolvent because you are afraid of the penalties of having used the bounce back loan improperly could lead to further issues for you. Therefore, it’s crucial to seek out sound guidance as soon as feasible. Do not hesitate to contact us.
How do I close a company down which has a bounce back?
The situation your business is in will determine the best way to shut it down. However, there is a strong indication for liquidation if you are unable to pay your bounce back, as we describe below
Strike it Off
Some directors have questioned whether using a bounce back loan will allow them to easily dissolve a corporation. In an effort to avoid fully dissolving a limited business, it is occasionally tried to simply strike the company off the Companies House registration in the hopes that it will somehow evade HMRC’s attention and vanish.
Simply put, a debt-ridden firm cannot be dissolved. However, the Insolvency Service has been given new authority to combat the misuse of bounce back loans, including the ability to bar offenders from serving as company directors for at least 15 years.
Despite how tempting it may be, our best advice is to face the facts head-on and liquidate the business with the aid of an insolvency practitioner. You can properly close the corporation in this manner.
You must get in touch with an insolvency practitioner who will handle communication with creditors on your behalf in order to start the liquidation process. Your duties as a director will end, and your responsibility will be to work with the liquidator to wind up the business of your company in order to maximise the return to creditors.
The insolvency practitioner is expected to look into the actions of the directors during the time before the insolvency as part of the procedure. This is done to look for any proof of improper trading by the directors. If the business was managed ethically, this is a simple step in the process, and the business is shut down and then stuck off from the register at Companies House.
Read more: Liquidate a company with a bounce back loan
If you are considering closing your business and have a Bounce Back Loan, it is important to understand the terms and conditions of the loan and how it may be affected by the closure of your business. The Bounce Back Loan is a government-backed loan intended to help small businesses during the COVID-19 pandemic.
The terms of the loan include repayment over a six-year period, with a 12-month repayment holiday. If you are unable to continue your business operations and decide to close, you will still be responsible for repaying the loan according to the terms agreed upon. It is important to contact your lender as soon as possible to discuss your options and any potential impact on your credit.
To investigate if you your position with a bounce back loan if you wish to close your business complete the online enquiry.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.