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Can I close my Business With a Bounce Back Loan?

5th June, 2023
Robert Moore

Written ByRobert Moore

Marketing Manager


+447584583884

Rob has over a decade of experience in web and general marketing. He has extensive knowledge of the Insolvency sector and has helped many worried directors with their questions.

Rob is now working with the Board at KSA Group Ltd to develop strategic marketing programmes to support the business plan and drive more company rescues.

Robert Moore
  • So how does a dissolution work?
  • How to close the company with a bounce back loan using liquidation.
  • What happens to the Bounce Back Loan in liquidation?
  • Can I Be Made Personally Liable for The Bounce Back Loan

There is nothing to stop you closing your business if it has an unpaid Bounce Back Loan.  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.

Worried Director What Will Happen To Me After Liquidation?

in Company Liquidation What is …?

"A man in the pub said I cannot be a director of any other company if I liquidate my company. Is this true?"Actually, this statement is entirely false! Misconceptions like this frequently arise from individuals with limited understanding of the subject matter. Such misinformation can cause undue anxiety for directors considering liquidation, fearing it might personally affect them. Guess what? Listening to bar room experts, inexperienced accountants, or no insolvency specialist lawyers can stop decisions being made, this failure to make a decision is really what could land you in trouble. So how will liquidation affect me and how long does it take? Having a limited liability company means that the directors have little risk (or limited liability) if the company fails, as long as they have acted properly and acted in time. What is more, if as a director, you have been compliant and on the payroll for many years, you can actually claim redundancy from the government like any other employee. But, and it is a big but, if you fail to act in time, fail to act reasonably, fail to keep books and records, continue taking credit KNOWING that the company cannot possibly repay it, then you ARE at risk of personal financial loss or worse such as losing your house. So, act now and get help for your company and more importantly start reducing your own risks.Voluntary liquidation is the quickest most efficient way to deal with an insolvent company that has no future. As a director of an insolvent company, you are at risk if you do not act. This risk RISES the longer you don't act to put the company into liquidation.If you fail to act and the company is wound up by the creditors (compulsory liquidation) then the Official Receiver (OR) will be appointed to liquidate the business and he or she will investigate the activity of the directors and the business over the last 2-3 years. This is known as a conduct report on each director.  If the OR can prove there was wrongful trading where, for instance, you have taken credit from a supplier or took deposits from customers when you knew that it was highly unlikely that you could pay them back, then you could be made personally liable.This is known as the "lifting of the veil of incorporation" that protects directors under limited liability. If this happens then you could made liable for PAYE, VAT and creditors monies from the time that you should have known the company had no reasonable prospect of surviving the problems it faced.Additionally, the directors may face disqualification proceedings under the Company Directors Disqualification Act 1986 for up to 15 years, they can be fined and may face the loss of personal assets like your home, or even personal bankruptcy.Look, if you as directors have acted naively you may not know that you have broken these laws, but now you do know, it is vital to ensure that you protect yourself as a director by acting quickly to cease trading and put the company into voluntary liquidation; or consider a company voluntary arrangement if the company is VIABLE if the problems are solved. What is Creditors Voluntary Liquidation and what does it mean for me? In short, liquidation usually means, the company's trading stops and it's assets are turned into cash or "liquidated".All other possible liabilities, like employment liabilities, landlord's rent or payments to lease companies are stopped. It really is the end of the company, but the "business" may survive if a phoenix is organised. Liquidation is a powerful way to END creditor pressure and let you get on with your life. What if I have signed personal guarantees? If you have signed personal guarantees or indemnities to lenders, then the liquidation could lead to them being called in if the bank cannot get its money back from the company. There is little that can be done about that, but you should not delay decisions on liquidation to try and prevent a PG being called in: just think what ALL of the company's debts landing on your shoulders would do. Also it should be noted that HMRC now rank ahead of floating charge holders in any liquidation since December 2020.  Consequently, this may well mean that lenders that you have personally guaranteed will get less recovery hence exposing you more.All banks will agree a deal to repay the PG over time - provided you work with the bank to reduce their exposure.One great piece of FREE advice - always make sure that ALL tax returns, VAT returns and annual returns have been completed and sent in and that other "compliance" issues are dealt with wherever possible. These are important processes and will help protect you as individual directors. It shows that you have been acting properly.  I have heard about directors being able to claim redundancy in liquidation If you have been employed by the company and made payments via PAYE then you will be able to claim redundancy from the government and this is in fact a very simple process (20 minutes to fill out a form and we can help with that) so there is no need really to employ a third party to make a claim.  This process has been open to fraud so the HMRC are cracking down on operators that claim to be able to get money back when there is not enough "paperwork".  It isn't worth the risk.  If it sounds too good to be true then it probably is!You need to learn more about the options. This is clearly a general guide so, if you have any worries at all, please, just call us and we will talk you through the situation free and with expert guidance for your situation. Call one of our advisors or if you prefer, call our IPs (insolvency practitioners) now:Just one CALL will help relieve the stress and get you out of the mess.Why not call 08009700539 or 020 7887 2667 now?We could help you start the liquidation process today.(8.15am till 5.00pm; Out of hours call on 07833 240747, Wayne Harrison (IP)  or Eric Walls (IP) on 07787 278527)Finally, please remember this: NO BUSINESS is worth losing your health, relationships, marriages or your children over. Act properly, take advice, get the problem sorted and then get on with your life. In a little while the stress will go and you can focus on other things that are more important.Want more information on liquidation? Get our new free 2023 Experts Complete Guide to Creditors Voluntary Liquidation that covers Bounce Back LoansWe are experts in liquidation, voluntary liquidation, administration, pre-pack administration, business rescue, corporate rescue and company rescue, we can help solve your problems but only if you talk to us. Call 0800 9700539 for help.or email us your worries at help@ksagroup.co.uk 

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