Thousands of small businesses due to start repaying Covid support loans could find themselves unable to make payments. Can you wind up your company if it already has a Bounce Back Loan?

A new legislative measure preventing company directors from informally closing their business to avoid an investigation into director conduct, instead of entering a formal insolvency process, is due to come into play. The first reading in Parliament recently took place and the measure appears to come into force in late 2021. As Bounce Back Loan repayments fall due following the optional pause on repayments, company directors will need to brace company cash flow for additional outgoings. Currently, if this route is pursued by your limited company with an outstanding Bounce Back Loan, rather than a formal insolvency route, you will likely receive an “Objection to Company Strike Off Notice”. After the rules are approved, this will ring alarm bells and kickstart an investigation by the Insolvency Service.

Is your Bounce Back Loan lender classed as a creditor?

At the onset of the coronavirus pandemic, the government heavily advertised emergency support through the Bounce Back Loan Scheme for SMEs experiencing severe dips in cash flow and disruption to revenue. Loans between £2,000 and £50,000 were made available, with loan terms extending between 6 to 10 years. Offered through a simple application form, funds were made available within 24 to 48 hours without a hard credit check.

Although this was vital for the survival of the economy, businesses at risk of becoming insolvent in the long run loaded unmanageable amounts of debt onto their limited company. Paired with the moratorium on winding up petitions, businesses highly susceptible to creditor action were granted temporary protection – delaying their demise, rather than facilitating a rescue, in some cases.

Are there any caveats to closing your business with a Bounce Back Loan?

If your business is genuinely unable to cope with company liabilities due to Covid-19 complications and you still want to liquidate your company with a Bounce Back Loan, you will be able to pursue company liquidation under the guidance of a licensed insolvency practitioner. Your Bounce Back Loan is an unsecured debt that will be repaid after the liquidators’ fees and preferential debts are settled. If there are no suspicions of wrongful or fraudulent trading, your business will be liquidated, and your remaining Bounce Back Loan will be repaid by the government.

If you’re unsure of your position in relation to an outstanding Bounce Back Loan and you want to liquidate your company, speak to a reputable accountancy provider or a licensed insolvency practitioner like Middlebrooks.