If you took a bounce back loan with Barclays, and are now unable to pay it back, you’ll be wondering what your options are.
Barclays offered bounce back loans (BBLS) under the government approved scheme from 4 May 2020 to 31 March 2021 for businesses financially impacted by Coronavirus.
As per the rules of the scheme, those businesses who secured the funding should now be paying them back. But what happens if you find yourself unable to pay? We’ll explore this subject below and, if you need advice or support, please do get in touch with our licensed experts.
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What Happens if You Can’t Pay Your Barclays Bounce Back Loan?
If you can’t pack the bounce-back loan, you have a few options.
Pay as You Grow Scheme – This scheme has been designed by the government to alleviate the financial difficulty of repayment. You can extend the loan term from 6-10 years, request a payment holiday of six months, or pay interest only for six months. Apply via your Barclays app if this solution makes sense for you.
Close the Company – If the company can’t pay what it owes, this means you are insolvent. You should confirm this with your accountant or a licensed insolvency practitioner. Closing an insolvent company requires the process of liquidation, which means all corporate debts are written off. As such, your bounce back debts will disappear along with the company itself. This process does require professional assistance, though, as you can’t liquidate a company yourself.
If You Don’t Pay Your Barclays Bounce Back Loan
- You should expect requests for payment letters
- Interest and penalties on late payment
- Barclays will refer your debt to a debt collection agency or debt purchaser
- Your credit rating will be impacted
- Ultimately, you could face a winding up petition, which would force your company into liquidation
Who Is Liable For A Bounce Back Loan In A Limited Company?
The limited company structure is set up to include a clear seperation between directors and the company itself. This is the major advantage of having a company because it means that liability is ‘limited’ to the company itself.
Also, Bounce Back Loans were so available precisely because they did not request personal guarantees from business owners. Instead, the government guaranteed 100% of the loan. So, if the company fails and enters into voluntary or compulsory liquidation, the lender will get their money back from the government. That protects the director’s personal finances and assets. If the company is insolvent, the debts are written off with the company, with a few exceptions details below.
When Could Company Directors Be Personally Liable For The Bounce Back Loan?
Providing that directors acted reasonably and responsibly and used the Bounce Back Loan for the economic benefit of the business, there is no risk that you will be personally liable for the loan if the company cannot pay it back.
Although the government has temporarily suspended wrongful trading regulations to help struggling businesses, the rules surrounding preferential payments (s239 Insolvency Act 1986) and misfeasance (s212) still apply. In these two instances you could still face personal liability for the debt, even when you haven’t provided a personal guarantee.
- Instances of misfeasance – Where a director deliberately used the funds for personal gain, such as repaying a director’s loan account or paying dividends or drawings when the company cannot pay its creditors or suppliers.
- If preferential payments were been made – The loan is used to repay certain creditors ahead of others, for example, you pay off a loan to a connected party or where a personal guarantee has been provided, then you could be made personally liable to pay it back.
Dissolving or Striking Off A Company With A Bounce Back Loan
The criteria for dissolving a company is as follows.
- It should have no debt
- Accounts should be up to date
- Has not traded or changed it’s name in the last 3 months
- Should not be in liquidation or have agreements with creditors such as a Company Voluntary Arrangement
Clearly, the existence of a bounce-back loan means that a company fails the first of these criteria, and hence, it won’t be possible to seek the easy solution of simply striking off.
Rather, the appropriate method is to see a voluntary liquidation using the services of an accredited and licensed insolvency practitioner.
What Will Happen If You Try To Dissolve A Company With A Bounce Back Loan?
Since all strike-off applications are publically advertised in the London Gazette, which is the journal of public record, creditors may see your attempt to dissolve the company and lodge a formal objection.
Equallly, HMRC has staff members at Companies House whose job it is to scrutinise any Strike Off Applications and check against existing debts.
In fact, even if you successfullly managed to strike off the company using Form DS01, a creditor could lodge an objection after the fact and apply to have your company formally reinstated so that they can force you into compulsory liquidation.
In short, it’s simply not worth attempting this method as you will never gain the peace of mind that everything is settled.
Liquidating A Limited Company With A Bounce Back Loan
A limited company with an outstanding Bounce Back Loan can be liquidated through a process known as Creditors’ Voluntary Liquidation (CVL). This procedure is applicable to companies that are insolvent, meaning they can’t pay their debts.
In this case, the Bounce Back Loan is treated as an unsecured debt, which means it will be repaid from the proceeds of selling the company’s assets during the liquidation process, following a predetermined order for paying creditors. If there are any debts that remain unpaid after this process, they are generally written off, and the company is formally closed. The directors are then free to pursue other business ventures or employment opportunities.
The liquidation process is typically straightforward because Bounce Back Loans did not require personal guarantees from directors. However, if there were any irregularities in how the loan funds were used, these might come under scrutiny.
For example, if a liquidator’s investigation reveals that loan funds were not used for the benefit of the company, and instead for personal gains or other inappropriate purposes, there could be serious consequences. Directors found to have misused funds might be held personally liable to repay the loan and face disqualification from serving as a director for up to 15 years. This underscores the importance of how loan funds were managed prior to considering liquidation.
What Will Happen To Your Bounce Back Loan If You Liquidate Your Company?
If you liquidate your company, your Bounce Back Loan will be treated as an unsecured debt. This means that it will be repaid from the sale of the company’s assets in order of priority, after secured debts such as mortgages and bank loans have been paid off. If there are insufficient assets to repay all of the company’s debts, the Bounce Back Loan may be written off.
It is important to note that the government has guaranteed the Bounce Back Loan scheme, which means that lenders will be able to reclaim any money that they lose on Bounce Back Loans from the government.
Can You Be Made Personally Liable For Bounce Back Loans During A Company Liquidation?
Yes, it is possible to be made personally liable for Bounce Back Loans during a company liquidation. This can happen if:
- You misused the Bounce Back Loan funds. For example, if you used the money to buy personal assets or to pay off personal debts.
- You failed to act in the best interests of the company and its creditors. For example, if you traded the company recklessly after you knew that it was insolvent.
- You gave preferential treatment to some creditors over others. For example, if you paid off your own debts or the debts of friendly creditors before paying off other creditors.
If the liquidator or administrator finds that you have done any of these things, they could make you personally liable for the Bounce Back Loan. This means that they could hold you personally responsible for repaying the loan, even if the company’s assets are insufficient to do so.
Need Expert Advice on Repaying Your Bounce Back Loan?
If you’re concerned about potential personal liability issues arising from a Bounce Back Loan, call 08000 24 24 51 or email info@businessexpert.co.uk today. We have a team of licensed insolvency practitioners who will provide a free initial consultation to help you better understand your position.
FAQs
Will HMRC conduct bounce back loan investigations?
Insolvency practitioners have been instructed by HMRC to report any suspicious activity they discover in the course of a liquidation to a dedicated team who will be conducting bounce back loan investigations if there is evidence of misfeasance or criminal activity. To date, HMRC has published a number of incidents publicising actions taken against offenders.
What happens if you use a bounce back loan for personal use?
Government guidance makes it clear that bounce backs used for personal use must be paid back and that action could be taken to render directors personally liable if this is discovered.
What happens if my business goes bust and I have a bounce back loan?
If a business goes bust, bounce back loans can be written off as with any other debt belonging to a limited company. The loan provider then becomes a creditor and is paid from the insolvent estate, where circumstances allow.
What happens to my BBL if my company closes?
Closing a company via liquidation means the end of its debts, and hence BBL’s will be written off. This must be done by a licensed insolvency practitioner to ensure fair play. You cannot simply close the company yourself.
