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.
Directors may worry that they may not be able to pay back CBILS loans that have been granted to their companies during the pandemic. We discuss that here. But, first of all it is important to know what the loan was intended for and the conditions attached, so we begin with a loan overview.
This scheme provided facilities of up to £5m for small to medium enterprises who experienced cashflow issues as a result of the pandemic. Through the Coronavirus Large Business Interruption Loan Scheme which followed the initial CBILS, up to £50m is offered (£200m as of 26 May) for firms with revenues between £45m and £500m.
CBILS were available for most business finance products such as;
The scheme provided the lender with a government-backed guarantee potentially enabling a ‘no’ credit decision from a lender to become a ‘yes’.
Smaller businesses from all sectors could apply for the full amount of the facility. To be eligible for a facility under CBILS, the SME must:
Applications for CBILS loans closed on the 31st March 2021. They have been superseded by the Recovery Loan Scheme
You could use the loans to pay staff wages (directors included). It could also be used to help with rents and business rates, any monthly business costs or overheads such as phone and electricity bills. Finally, directors may have wished to use it to refinance other business debts to lower the interest costs related.
CBILS loans could not be used to pay dividends or to pay into a personal savings account to accrue interest. It could not be used for any purposes other than those business related. To do so would not be “acting reasonably and responsibly” and you could be made personally liable if the company enters into voluntary or compulsory liquidation.
It has been reported that almost half of the emergency loans which the Government has provided during this pandemic, may never be repaid, which would cause a £26bn bill to the UK Treasury.
Advice from us, as a company rescue firm, is this: DO NOT run down the CBILS cash until there is nothing left to pay creditors, wages or to cover the cost of a liquidation. Same applies for Bounce Back Loans as well.
We are aware that may non-viable companies have taken out these loans. In fact, the government loosened the criteria for these loans so that companies marked by lenders as “undertakings in difficulty” could apply for these loans. So ultimately, if your company is unable to pay back this emergency loan, it is not too much of a problem, if you have acted “reasonably and responsibly as a company director”. The government are aware and this was expected. But perhaps one thing that was not expected was how long the period of the COVID crisis would be!
Companies that took out this loan and thought that after a few months of severe effects of the pandemic, it would be possible to start repaying the amount are now stuck. The issue of being unable to repay the loan is building up.
Remember that if you are unable to pay back this emergency loan, then you risk your credit rating being affected at the bank which can limit your attractiveness to future lenders.
CBILS loans in excess of £250,000 are often backed up by directors’ personal guarantees so unfortunately there will not be a way out of that. On the other hand, for loans below the value of £250,000 you may be held personally liable and the ‘’veil of incorporation’’ may be lifted on the limited company if you have acted unreasonably.
If you are in a hole then the usual advice is to stop digging! Do not run away from the issue nor make it worse. Face reality and assess the likelihood…your business may well be insolvent. Check out our pages, complete the insolvency tests and read our warning signs – do these apply or sound familiar? The most important thing if you find yourself in this situation is to ACT. Especially given that the factors involved here, personal guarantees, insolvency, liabilities. So, reach out and get professional assistance today!
No you cannot! The Insolvency Service is to be given powers to investigate directors of companies that have been dissolved as set out in the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill. This will close a legal loophole and act as a strong deterrent against the misuse of the dissolution process.
Extension of the power to investigate also includes the relevant sanctions such as disqualification from acting as a company director for up to 15 years. These powers will be exercised by the Insolvency Service on behalf of the Business Secretary.
The measures included in the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill are retrospective and will enable the Insolvency Service to also tackle Directors who have inappropriately wound-up companies that have benefited from Bounce Back Loans.