Bounce Back Loans were implemented to relieve some of the financial strain faced by companies during the height of the Coronavirus pandemic. For some, this goal was achieved, giving them much-needed capital to stay afloat. For others, the loan was simply not enough to cover the dramatic drop in commercial activity they suffered. The economic effects of the pandemic were pronounced, leading some directors who had received a Bounce Back Loan to consider cutting their losses and opening a new company.
This begs the question – can you transfer a Bounce Back Loan to another business?
In this article, Clarke Bell will answer this question, detail how Bounce Back Loans work, and what your options for handling one are.
What is a Bounce Back Loan?
The UK government introduced Bounce Back Loans as part of the Bounce Back Loan Scheme (BBLS). This scheme sought to aid the economy by financially supporting small companies, offering them up to £50,000 to help get them through the worst of it.
Bounce Back Loans had a series of advantages that made them an appealing prospect for struggling companies. Firstly, they were very accessible, with many companies able to submit an application and obtain a cash injection. These Bounce Back Loans were also guaranteed by the government, meaning there was very little risk assumed by lenders. Also, the loans would not impact the personal finances of borrowers. However, these advantages proved to be a double-edged sword, as some companies that were not realistically going to be able to make the necessary repayments still received a Bounce Back Loan. Now the time has come to repay, these companies, along with many others, are struggling to make ends meet and pay back the loan.
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Can you transfer a Bounce Back Loan to another business?
Due to the terms of the Bounce Back Loan agreement, directors will not be able to simply transfer their Bounce Back Loan to another business, even if they fully intend to repay it. This is because the Bounce Back Loan was specifically intended to support the company in question, as stated in the agreement. Transferring the debt to another company would not achieve this goal, and instead would be at odds with it. If directors attempt to transfer their Bounce Back Loan anyway, they would likely be reported for breaching the agreement, and could be found guilty of misconduct. This could bring a series of penalties, including the disqualification of their director’s license and fines. As such, it is best not to attempt a transfer of any kind.
If transferring a Bounce Back Loan to another business is out of the question, some directors might instead pursue other, similar actions, such as using the funds to open a new company. Again, this is not a viable option, as it breaches the Bounce Back Loan agreement. This is because investing Bounce Back Loan funds into a new company would mean it hasn’t fulfilled its purpose of assisting an existing company, a core stipulation in the Bounce Back Loan agreement.
If you cannot repay your Bounce Back Loan, you will need to explore what options are available to you.
How to deal with Bounce Back Loan debt
If directors cannot transfer their Bounce Back Loan debt to another company, it can be difficult to identify other options. That said, if your company is buckling under the weight of its Bounce Back Loan debt, along with other liabilities, liquidation can prove to be an effective response.
As with most forms of debt, it is entirely possible to close a company with a Bounce Back Loan. However, it will need to be done following particular guidelines to avoid assuming any personal responsibility for the debt, or charges of misconduct. One of the most effective methods of closing a company with a Bounce Back Loan, while staying on the right side of the law, is a Creditors’ Voluntary Liquidation (CVL).
Creditors’ Voluntary Liquidation (CVL)
A CVL is a formal insolvency procedure which provides insolvent companies with an effective means of closing down and dealing with their debts. It provides a series of benefits to both a company and its directors, the first of which is that directors can appoint an insolvency practitioner of their choice, rather than have one appointed on their behalf. This insolvency practitioner will identify any company assets and dispose of them, distributing the proceeds amongst the company’s outstanding creditors. If any funds remain at this stage, which is unlikely for most insolvent companies, they will be distributed amongst shareholders. After all distributions have taken place, the company will be wound up and removed from the Companies House register.
Once a company has been closed through the CVL process, any remaining debts will be written off. This is true for Bounce Back Loans, along with other debts that are not secured by a personal guarantee. In addition to this significant advantage, outstanding creditors will be unable to take legal action against a company once the CVL has begun. Essentially, this means that a company will be protected from being served a winding-up petition, and placed into compulsory liquidation which often follows such an order.
Also Read: The Complete Guide To Bounce Back Loans
Is dissolution a viable method of dealing with Bounce Back Loan debt?
Although the CVL process offers companies one of the most effective methods of closing, it is not the only option available. Dissolution, also known as a company strike-off, is often a strong alternative, offering directors a cheap but effective means of winding up a company. Understandably, some directors may be drawn to dissolution as a means of closing a company with Bounce Back Loan debt.
However, this is not an option for a company which has debts.
Attempting to dissolve a company with Bounce Back Loan debt, or any debt, will likely result in an objection from the company’s creditors – in particular, HMRC. Repeated attempts at dissolution may even be seen as attempting to flee from your debt, which could result in legal penalties such as the disqualification of your director’s license, fines, and even a prison sentence. As such, it is not a viable method of dealing with your company’s Bounce Back Loan debt.
Clarke Bell can help you
If you are struggling to repay a Bounce Back Loan, let Clarke Bell help you.
We have more than 28 years of experience in helping directors to find the best solutions for their company’s debt problems. We can do the same for you.
Contact us today for your free, no-obligation advice and find out the best option available to you.
