Bounce Back Loan Liquidation Advice for Directors

Bounce Back Loan liquidation advice can help directors understand what happens if a limited company enters liquidation with an outstanding Bounce Back Loan. The loan is usually a company debt, but the liquidator will still review how the loan was applied for, whether the company met the criteria, and how the funds were used.

If your limited company has a Bounce Back Loan and is now struggling, it is important to take proper advice before making decisions.

At DCA Business Recovery, we help directors understand their options when a company cannot repay a Bounce Back Loan, HMRC debt, trade creditors, rent, loans or other liabilities.

What Happens to a Bounce Back Loan in Liquidation?

Yes. A company can enter liquidation if it has an outstanding Bounce Back Loan.

A Bounce Back Loan is a company debt. If the company is insolvent and cannot repay its debts, a Creditors’ Voluntary Liquidation may be an appropriate option.

The fact that the company has a Bounce Back Loan does not automatically prevent liquidation. However, the loan and how it was used will usually be reviewed as part of the liquidation process.

The British Business Bank Bounce Back Loan FAQs provide further information about the scheme, repayment options and borrower questions.

Bounce Back Loan Liquidation and Director Responsibility

Bounce Back Loans were not usually supported by personal guarantees from directors.

That means the starting point is normally that the loan is a company liability, not a personal debt of the director.

However, directors should still take advice if there are concerns about:

  • Whether the company was eligible for the loan.
  • How the loan funds were used.
  • Whether money was paid to directors or connected parties.
  • Whether the company continued trading when it could not pay its debts.
  • Whether the company’s records clearly show what happened to the funds.
  • Whether there is an overdrawn director loan account.

The key issue is often not simply whether the Bounce Back Loan exists, but whether there are any conduct or accounting issues connected to it.

What if the Bounce Back Loan was used to pay wages, rent and suppliers?

Many companies used Bounce Back Loan funds for ordinary business costs, including wages, rent, suppliers, stock, utilities, tax and general cash flow.

If the funds were used for genuine company purposes, that is very different from funds being withdrawn for personal use or transferred without a proper business reason.

In a liquidation, the liquidator will usually review the company’s bank statements and records. Directors should be prepared to explain how the funds were used.

What if the Bounce Back Loan was paid to me as a director?

If Bounce Back Loan funds were withdrawn by a director, paid into a personal account, or used to reduce sums owed to a director, advice should be taken.

The payment may need to be reviewed as part of the company’s accounts. It could be treated as salary, dividends, repayment of a director loan, or an overdrawn director loan account depending on the circumstances and records.

If the director loan account is overdrawn, the company may have a claim against the director in liquidation.

This does not mean you should panic, but it does mean the position should be looked at properly.

Can I strike off a company with a Bounce Back Loan?

Strike-off is not usually appropriate where a company still has outstanding debts.

If the company owes money to the Bounce Back Loan lender, HMRC, suppliers or other creditors, creditors may object to the strike-off application. If an objection is made, the company will not usually be dissolved while the objection remains.

If the company is insolvent, a formal liquidation may be the more appropriate route.

What happens to the Bounce Back Loan in liquidation?

In a Creditors’ Voluntary Liquidation, the Bounce Back Loan lender is treated as a creditor of the company.

The liquidator will deal with creditors and review the company’s affairs. The director will usually be asked to provide information, books and records, bank statements and explanations about the company’s trading and use of funds.

If there are no assets available, creditors may not be paid in full.

Will the liquidator investigate the Bounce Back Loan?

The liquidator has a duty to review the company’s affairs and director conduct. This will usually include reviewing the Bounce Back Loan, especially where it is a significant creditor balance or where there are unusual payments.

The review may include:

  • When the loan was taken.
  • The amount borrowed.
  • Whether the company was trading.
  • How the funds were used.
  • Payments to directors or connected parties.
  • Transfers before liquidation.
  • Whether the company’s records are complete.
  • Whether there is an overdrawn director loan account.

Good records and clear explanations are important.

Should I keep paying the Bounce Back Loan?

This depends on the company’s wider position.

If the company can afford the repayments and is otherwise viable, continuing to pay may be appropriate. But if the company cannot pay HMRC, employees, rent, suppliers or other debts, making payments to one creditor while others remain unpaid may need to be considered carefully.

If the company is insolvent, you should take advice before deciding which debts to pay.

What if the company has other debts as well?

Bounce Back Loan issues often sit alongside other company debts, such as:

  • HMRC arrears.
  • Trade creditors.
  • Rent arrears.
  • Overdrafts and loans.
  • Supplier debts.
  • Employee claims.
  • Director loan account issues.
  • Personal guarantees.

We will look at the whole position, not just the Bounce Back Loan.

How DCA Business Recovery can help

We help directors understand what happens when a company with a Bounce Back Loan cannot continue.

We can talk through:

  • Whether the company is insolvent.
  • Whether a CVL is appropriate.
  • What happens to the Bounce Back Loan.
  • Whether there may be any personal risk.
  • What records you should gather.
  • How director loan accounts may affect the position.
  • What to do if HMRC or creditors are also chasing.
  • The likely next steps and costs.

Our advice is clear, practical and confidential.

Speak to us about Bounce Back Loan liquidation

If your company cannot repay its Bounce Back Loan, it is better to get advice early.

Call DCA Business Recovery on 01702 344558
or complete our contact form to arrange a confidential discussion.

Yes. A company can enter liquidation with an outstanding Bounce Back Loan if it is insolvent and cannot pay its debts.

Bounce Back Loans were not usually personally guaranteed. However, directors should take advice if there are concerns about eligibility, use of funds, payments to directors or an overdrawn director loan account.

The lender will be a creditor in the liquidation. If the company has insufficient assets, the lender may not be paid in full. The liquidator will still review the company’s affairs and the use of the loan.

Strike-off is not usually suitable if the company still owes money. Creditors may object. If the company is insolvent, liquidation may be the correct route.

To qualify for a Bounce Back Loan, a limited company generally needed to be trading before the scheme deadline, affected by COVID-19, and borrowing for the economic benefit of the business rather than personal use. The amount borrowed was usually based on the company’s turnover, up to a maximum of £50,000. If there are concerns that the company may not have met the criteria, or the loan was not used for business purposes, the director should take advice before liquidation.