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If I Can’t Pay My Bounce Back Loan Will I Be Personally Liable?

26th September, 2022
Robert Moore

Written ByRobert Moore

Marketing Manager


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
  • What is the Bounce Back Loan Scheme (BBLS)
  • Under What Circumstances Could A Director Become Personally Liable For The Loan?

What is the Bounce Back Loan Scheme (BBLS)

The Bounce Back Loans were aimed at smaller businesses and were loans of up to £50k 100% backed by the government.  In addition, you were not personally liable for the loan if the company could not pay it back. You could apply for the loan on the basis of your trading in the last 2 years or predicted trading this year.  This ensured access to capital for thousands of small and medium sized enterprises (SMEs).  The big advantage of the Bounce Back Loan for directors is that lenders couldn’t ask for personal guarantees.  However, just because they didn’t ask for guarantees, doesn’t mean that under no circumstances would you personally liable if the company couldn’t pay.

What were the loans for?

The whole idea of the loan was to provide capital quickly for companies adversely affected by the pandemic.  The loans were to be used for;

  • Paying staff,
  • Investing in equipment,
  • Stock,
  • Refinancing expensive loans.
  • Pay directors salaries if, and it is a big if, the company was viable and the previous profits of the company warranted such payments.

So, if the business was not viable or was pretty much insolvent prior to the pandemic then the loans should not be applied for.  Yeah right..  Given the crisis that was engulfing the country it is not surprising that everyone applied for the loans.  No doubt some were  “economical with the truth” or exaggerated expected sales when filling in the application.  The problem is though that when directors did apply they did have to declare that the business was not “an undertaking in difficulty”.  This was set out as per the EU State Aid Rules – Defined as:

  • had accumulated losses greater than half of their subscribed share capital (for limited liability companies) or capital (for unlimited liability companies)
  • had entered into collective insolvency proceedings, or fulfilled the criteria to be put into collective insolvency proceedings
  • had previously received rescue aid that was yet to be reimbursed, or (in the case of a guarantee, terminated)
  • had received restructuring aid and were still under a restructuring plan

Under What Circumstances Could A Director Become Personally Liable For The Loan?


It makes sense to pay off company debts, when you can. However, you must be very careful if you do this to the detriment of other creditors.  So, if you use a bounce back loan to pay off your brother, who lent you money to the company a few years ago, rather than HMRC or the bank loan, then you are in effect creating a preference.  I.e. preferring one creditor to another. This can be reversed by a liquidator at a later date, up to 20 years later!.  These rules apply if the company is insolvent i.e. failing any one of the 3 tests. Although this action may not make you personally liable it will certainly have an impact if the liquidator starts to demand money from family members.

If you take the Bounce Back Loan out of the company account and spend it on yourself for a holiday/car or just general living expenses then this could be regarded as the directors acting irresponsibly. However, be aware that if you have used the loan to pay off personal debts then that is pretty much fraudulent.  If the company cannot pay back the loan then the bank, or a liquidator, may well investigate where it went and conclude that it was “stolen” from the company.  The veil of incorporation will be lifted and you will be personally liable for the debts.   In addition, you may well be disqualified from being a director of a company.  So, basically it is not worth it.

Sole Trader

If you are a sole trader and you have taken out a bounce back loan then this is to you personally as the business.  So, you are personally liable for the loan. This has caught out a number of people as the Government messaging was that if you took out the loan you would not be liable.  However, they were talking about company directors not sole traders.  Whether this was made clear on the application we are not sure.

Talk to us today in confidence 0800 9700539 07833 240747

But surely we are in a different world now?

Yes, and no!  The government has reinstated the insolvency rules regarding wrongful trading and it has not relaxed other parts of the insolvency legislation such as the creation of a preference.  So if your business was/is insolvent, which in legal terms probably was as the pandemic took hold, then the rules still apply.

The UK government will be keen to get money back from the Bounce Back Loans Scheme. Given that they estimate that 40% of companies will not be able to pay them back they will look closely at the behaviour of directors.

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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 

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