Can I Close My Business With a Bounce Back Loan?

There is nothing to stop you closing your business if it has an unpaid Bounce Back Loan (BBL).  To write off the debt then it should be liquidated using a creditors voluntary liquidation.  However, if there is a very small debt left, say £3000, then it may be possible to seek a dissolution.  The bank or lender may object to the striking off but at that level of debt it is probably not worth their while.  Remember thought if the company has other debts, then the correct process is a liquidation done by an insolvency practitioner as the company is insolvent.

So how does a dissolution work?

This process is also known as a voluntary dissolution. It is a provision in the Companies Act to allow the removal of the company from the Companies Register, typically when the company is dormant.

If the company serves no useful purpose, its dissolution removes the need for the filing of annual returns and accounts. However, bear in mind that dissolving the company (removed from the Companies House Register) can only happen if the following conditions apply:

• The company has not traded for three months.
• The company has no assets, property or cash at the bank.
• The creditors are informed, requesting their permission for the company dissolution.
• Creditors are given three months to consider the request to dissolve the company and can reject such a request.
• The company has not changed its name in this period.
• The company has not disposed of any property or assets (this may include land and buildings, plant and equipment, debtors and other assets).

As stated earlier, if the Bounce Back Loan is more than say £3000 then the bank may well object and seek to wind up the company via compulsory liquidation.  You should then consider a creditors’ voluntary liquidation

How to close the company with a bounce back loan using liquidation.

1. Board Meeting: The directors convene a board meeting to assess the company’s financial position and determine if it is insolvent. If they agree that CVL is the appropriate course of action, they will pass a resolution to initiate the process.
2. Appointing an Insolvency Practitioner: The directors must appoint a licensed insolvency practitioner (IP) to act as the liquidator. The IP’s primary responsibility is to oversee the liquidation, realize the company’s assets, and distribute the proceeds to the creditors.
3. Shareholders Meeting: Usually just before the creditors’ meeting where the shareholders agree to place the company into liquidation.
4. Using the deemed consent process there is no need for an actual creditors meeting.  Notices go out about the proposed liquidators and if no objections are raised within 14 days, then the liquidation process starts.  This is more suitable for smaller uncontentious liquidations which is more likely in the case of companies with small bounce back loan and associated debts.
5. Creditors’ Meeting: The IP will convene a creditors’ meeting, typically within 14 days of the board meeting, to inform the creditors about the company’s financial position, the proposed CVL process, and to seek their approval.
6. Liquidation Commences: If the creditors approve the CVL, the liquidator will commence the process of realizing the company’s assets, settling any legal disputes, and distributing the proceeds to the creditors.
7. Finalization: Once all assets have been realized and the proceeds distributed, the liquidator will prepare a final report and hold a final creditors’ meeting. After this, the company will be dissolved, and its name removed from the register at Companies House.

What happens to the Bounce Back Loan in liquidation?

On entering liquidation, any bounce back loan becomes an unsecured debt i.e. the loan is not secured against any company assets. As per our flowchart on who gets paid first when a company goes into liquidation or administration, unsecured creditors are just before last out of the seven overall categories. So, what this means is that the insolvency practitioner, secured & preferential creditors and floating chargeholders must all be satisfied before the settling unsecured creditors and shareholders with their amounts. Now that HMRC are preferential and, in most cases, are a large creditor by value they will take a large chunk of any distributed money.  Consequently, unsecured debts are rarely paid in full in liquidation. For this reason, the bounce back loan is secured 100% by the government allowing the lender to go to the government to get repayment for the loan in full.  The British Business Bank, that has overseen these loans, has made it very clear that they expect the banks to pursue these debts in the normal way.  Only if the business becomes insolvent will the bank be be able to claim from the government.

Can I Be Made Personally Liable for The Bounce Back Loan

Initially, the answer is no. But, there are some caveats to this.

If you use the BBL funds for anything not financially beneficial for the company then you may be held personally liable. So, the funds can be used to pay wages, by supplies, settle bills BUT if you, as the director, are found to take advantage and use the funds to pay personal loans off or invest in property etc, then personal liability is expected. When the company becomes insolvent the licensed insolvency practitioner has the role of investigating the directors’ actions – which includes seeing how the BBL was used.  If it is deemed that the money has been “stolen” from the company, then they will pursue the director for this.

BBL funds can be used to refinance existing company debt, but you must use it wisely. If you choose to favour some creditors over others, then this brings risk of making preferential payments which can be reversed by a liquidator for up to 20 years after the payment was made.