A number of business owners believe wrongly that they can simply dissolve a company with a bounce back loan. Since the introduction of The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act which aims to tackle directors dissolving companies to avoid repaying Government backed loans
These where put in place to support businesses during the Coronavirus pandemic, it is now illegal to dissolve a Limited Company with a bounce back loan
This Act extends those investigatory powers to directors of dissolved companies and if misconduct is found, directors can face sanctions including being disqualified as a company director for up to 15 years or, in the most serious of cases, prosecution.
What happens if you try to Dissolve a Limited Company with a Bounce Back Loan?
If you try to dissolve a limited company with a bounce back loan the first thing that will happen is that you will receive a letter known as the ‘Objection to Company Strike Off Notice’.
The Objection notice is an indication that Companies House has picked up on the fact that debts remain and your chosen course of action is being questioned.
HMRC officers monitoring directors attempting to avoid tax liabilities via company dissolution, companies house and HMRC cross check all application to ensure compliance.
In regards to a bounce back loan objections are likely come from the finance provider to whom the Bounce Back is owed, lenders usually pick this up from the advertisement in the London Gazette.
Even though the loans are underwritten by the government, its is still the protocol for a lender to chase defaults with their normal debt enforcement proceedures.
Can a Bank Reinstate a Dissolved Company?
Before The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act was passed, a number of companies managed to slip past companies house by using the dissolution process.
Banks and lenders can reinstate a dissolved company as the law states” The liability (if any) of every director, managing officer and member of the company continues and may be enforced as if the company had not been dissolved.” – Section 1003 (6) of the Companies Act.
Can a Bank use ‘set off’ to repay my bounce back loan?
If you have apply to dissolve your company while an amount is outstanding in regards to a bounce back loan, a bank can use something that is called a set off.
As per Terms and Conditions a bank can use “Set Off”: If you have money in one of your accounts (except for trust, client or joint accounts), we may set it off against any amount you owe us which is due for payment on other accounts (including money you owe on a joint account) so it reduces or repays the amount you owe us. We’ll only do this with accounts in your name and after we have checked that you have enough left in your accounts to cover essential living costs.
Correct Way to Close a Limited Company with a Bounce Back Loan?
The correct way to close a limited company with a bounce back loan is by appointing a licensed insolvency practitioner, who will carry out a formal insolvency process called a company voluntary liquidation.
The practitioner will deal with all the company creditors in a uniformed manner, once they have finished the process the company will finally be dissolved of Companies House register.
Directors which have been on the payroll for more than two year maybe eligible to claim for redundancy. To receive further information simply complete an online enquiry or contact us on 01246 912052.
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.