Can I Liquidate a Company with a Bounce Back Loan?

Can I Liquidate a Company with a Bounce Back Loan?Yes, you can liquidate a company with a bounce back loan. Bounce Back Loans, like other unsecured debts, are not backed by any collateral and are considered lower priority in the event of a borrower’s insolvency.

In the event of liquidation or bankruptcy, unsecured creditors, including those who have provided Bounce Back Loans, will only be paid after secured creditors and priority debts have been paid.

The insolvency practitioner in charge of the liquidation process will determine the order in which creditors are paid based on the specific circumstances of the case.

Liquidating a company with a bounce back loan is usually seen as the last resort, directors will have exhausted most avenues to keep the business viable

In a usual case, banks and other financial providers have a ‘first lien’ or secured charge over particular assets when it comes to lending significant sums of money. One of the USP’s of the Bounce Back Loan is that this wasn’t the case: lenders were guaranteed their money by the British government meaning they didn’t need to enforce their usual security.

As a company director this means you won’t risk losing personal assets, as would be the case by a typical bank loan secured with a personal guarantee.

What happens to Bounce Back Loan if company goes bust?

When a company goes bust the bounce back loan will also be written off. As the debt has been crystallised it allows the lender to claim on the guarantee it received from the government to repay the lender in full. As the lender is classed as an unsecured creditor, if there is any realisations from the insolvent company, it’s the government that will receive a dividend and not the lender, as the lenders debt will have been settled.

In some cases, the government may also pursue directors of the company for any loans that are not repaid if misuse of the loan has been suspected.

This is because the Bounce Back Loan Scheme is seen as a form of state aid, and directors have a duty to ensure that state aid is used in accordance with EU rules.

What happens to the Loan if I close my company?

Simply closing the company is not enough to write off a bounce back loan, the company will need to under go an insolvency process such as a liquidation. oOnce this process has taken place the Bounce Back Loan will be cleared and the lender will become an unsecured creditor.

Unsecured debts are different from secured debts, where creditors such as banks and factoring companies hold charges over company assets to secure their funding. Unlike secured debts, unsecured debts, and their creditors don’t have substantial claims over company assets.

Close Insolvent Limited Company with a Bounce Back Loan

As the director of an insolvent company, you need to take decisive action the moment you recognise your company’s position. Failure to put the interests of creditors first in insolvency (as opposed to shareholders) could place you at risk of wrongful trading or fraudulent trading charges.

If you believe you are insolvent you need to do the following:

  • Take professional advice from a licensed insolvency practitioner like ourselves immediately
  • Don’t pay anyone or touch the company bank accounts
  • Record your actions carefully
  • Don’t panic or put your head in the sand, simply take clear decisive action and we’ll help you through it as best we can

How to close a company with an outstanding Bounce Back Loan

Closing a company with a bounce back loan needs to be done by a licensed insolvency practitioner, this is due to only when a company has entered insolvency can the lender claim on its guarantee from the government to settle the debt.

The two options to close a company with a outstanding bounce back loan are: 

Compulsory liquidation

Compulsory liquidation is when a creditor has opted to file a winding up petition against your company in order to force the business into a compulsory liquidation via the courts.

Once the credit has gained a winding up order against the company, the Official receiver will then act on liquidation the businesses assets.

Company voluntary liquidation 

Voluntary company liquidation is when the shareholders and directors of a limited company opt to elect an insolvency practitioner of their choosing to close down the business, this process can take around a month from start to finish.

Cant Afford to Repay – Contact Today

If you are a company director and can’t afford to repay your bounce back loan, the first thing you should do is seek professional advice. Directors should therefore be aware that if they are concerned about the implications of this, they should make contact with us as soon as possible for an informal discussion about your situation if you should liquidate my company.

We can explain your options and whether we feel your actions fall outside the intended use of the bounce back loan. 

Read more: What Happens if you Default on a Bounce Back Loan?

Steve Jones Profile
Insolvency & Restructuring Expert at Business Insolvency Helpline

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.