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What are the consequences of defaulting on a Bounce Back Loan?

16th June, 2022
  • What is a Bounce Back Loan?
  • What is a default?
  • What options can my lender suggest to help?
  • Can I restructure my company with a Bounce Back Loan default?

What is a Bounce Back Loan?

This is a government-backed loan for small businesses, introduced during the difficult trading times through COVID-19 and the numerous related lockdowns. Loans could be 25% of your turnover with the maximum loan being £50k.  The loans also and had low-interest rates. The availability to apply for this loan stopped on 31 March 2021.

What is a default?

Defaulting on a loan means missing a scheduled repayment. Your account will therefore fall into arrears. When this occurs, your lender will have a number of options, as outlined in the agreement you signed when taking on the loan.

When companies took out the Bounce Back Loans the total length of the pandemic was underestimated. So, some businesses have struggled for longer than anticipated.  In response the terms of repaying the loan were extended to up to 10 years.  Remember, the loan may have been Government secured, BUT the responsibility for repayments lies with the company (you will not be personally liable as a director, but your company is as it is own legal entity).

If you think you may default on the loan then the most important thing to do is to communicate with your lender. Inform them about any difficulties you are facing in meeting the payments (before they contact you!). This way, they are aware and may be able to help. If they cannot help then you know you must seek alternate options. However, more often than not, lenders will be fair and considerate if you communicate.

The Office of Budget Responsibility’s Fiscal Sustainability Report 2020 predicted that the number of businesses with Bounce Back Loan defaults could be around 40% – we are unsure how this will play out,  but all in all you are not alone!

What options can my lender suggest to help?

Once you have got in touch with your lender – as suggested the first step to take, there are some options that can be explored together.

  • Renegotiating the payment plan to help you maintain your account going forward.
  • Pay as You Grow Scheme; taking a short payment holiday from the Bounce Back Loan.
  • Extending the loan length from the standard 6 years, to 10.
  • Switching the loan to an interest-only basis for a short duration.

These options can give breathing space for your business’s trade and cash flow to improve.

What if you are still struggling to pay?

Get in touch with a licensed insolvency practitioner like us at Company Rescue. There may be deeper issues noticed or at least worth reviewing. A default may mean more serious financial problems – even the brink of insolvency!

Speaking with someone experienced in helping others with similar situations can guide you through.

Can I restructure my company with a Bounce Back Loan default?

Of course! A Bounce Back Loan default does not mean that is the end for the company. There are various business help solutions to rescue the company and steer it through financial and operational struggles. This is why speaking to a licensed insolvency practitioner would be of use – they can go through this with you and explore your options and viability.

  • Place the company into administration. This will allow you breathing space since a moratorium is put around the company stopping any legal action, whilst you focus on restructuring the company’s finances and operations, to rescue its viable aspects.
  • Enter a Company Voluntary Arrangement / CVA. This involves a formal payment plan being agreed upon by the creditors and the company directors. It often lasts for 3-5 years, reducing the payments per month so the company can trade in the meantime, thus being able to have the funds to pay back.

If your company cannot be rescued and has no chance of being able to pay back any of the debt then, winding up the business may be the most suitable option. If you want this process to happen quickly so you can get on with your life then the best option is a Creditors’ Voluntary Liquidation and you will need to appoint a licensed insolvency practitioner to start the process.

Alternatively, you could wait for a creditor to wind up the company by going to court but this type of liquidation known as compulsory liquidation carries more risk, can be more stressful and can take at least a year. In both cases the insolvency practitioner will need to investigate the conduct of the directors and establish if the bounce back loan was used appropriately. Ultimately, in this case, the Bounce Back Loan and any penalties or fees associated, will be written off, as with any other unpayable debts for creditors.

If you would like further information or some expert advice, get in touch with us today. Just remember all we have said in this guide and keep in mind the top tip – do not ignore defaults as this will just worsen the situation!

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 

Worried Director What Will Happen To Me After Liquidation?

Notice of Intention To Appoint Administrators

A notice of intention to appoint administrators is when the company files a document to the court to outline that it intends to go into administration if a solution cannot be found to its immediate financial problems. It can be used as part of the pre-pack administration process as well as used to restructure a failing business to avoid its liquidation.

Notice of Intention To Appoint Administrators
Man with umbrella

What Is A Winding Up Petition By HMRC or Other Creditor

A winding up petition is a legal notice put forward to the court by a creditor. The creditor petitions to the court if they are owed more than £750 and it has not been paid for more than 21 days. The application, in effect, asks the court to liquidate the company as they believe the company is insolvent.

What Is A Winding Up Petition By HMRC or Other Creditor

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