What happens if I stop paying my bounce-back loan? Do I have to repay my bounce-back loan if I wind up my business?

How to write off a bounce-back loan. Can a bounce-back loan be written off? Can I wind up a company if I have a bounce-back loan?

As a director of a limited liability company will I be held personally liable for a bounce-back loan if it is not paid back?

These are the most common questions we are asked. 

What happens if I do not repay my bounce-back loan and I wind up my business?

Any Bounce-back loan given to a limited firm was on an unsecured basis and is no different to any other unsecured loan but remember the bank that issued it was guaranteed against default by the government.

If your business is unable to trade then it can be wound up either by a creditors winding up petition or by a voluntary winding up order. If your business has no way of paying creditors the debt is written off and the government will pay the bank for any losses they may incur.

So what happens if I stop paying my bounce-back loan and my company is put into receivership

If the company has no assets to pay off the loan then the debt will be written off

Providing that you as a director have not broken the terms and conditions of the bounce-back loan scheme, then it wil be treated no differently to any unsecured debt.

However, the use of the loan as to how it was spent will be investigated and dealt with by the appointed receiver during the liquidation process. If the loan was used entirely for the running of the business and you can prove that all should be okay.

All licensed insolvency practitioners have a legal duty to look into how a bounce-back loan was used by a business. It could have been used to pay directors’ wages providing the level of remuneration was a reasonable expense to keep the company afloat.

Misconduct of the bounce-back loan scheme

The main misconduct with bounce-back loans is personal use of the funds and fraudulent applications (such as transferring bounce-back loan funds to a separate company, inflated turnover, or applying when the firm was already insolvent).

Concerns will be raised if some of the money was used personally, i.e. drawn out of the business account and put into a personal account.

The insolvency service recently investigated and disqualified a director who purchased a Rolex watch with his company’s bounce-back loan. They are increasing the effort in investigating bounce-back loan misconduct, this can lead them also to investigate the company’s conduct of the furlough scheme

Providing the loan you received was used for the business and not used the next day to purchase a Porsche or timeshare all should be okay.

Bounce Back loans introduced during the COVID pandemic had very limited eligibility criteria many businesses qualified for loans of up to £50,000 on an unsecured basis. The government covers the banks who loaned the money for losses if the company defaults on the loan. Having said that the bank will chase the bounce-back loan debt up with the current directors with consistent determination until it is wound up one way or the other.

Read More About Bounce Back Loans and Misconduct

Read more about general business debt and the solutions

Business Debt