In May 2020, the Chancellor of the Exchequer Rishi Sunak introduced the Bounce Back Loan Scheme. The scheme was designed to help small to medium businesses that were struggling financially due to the Covid-19 pandemic.
Applications for the scheme were closed in March 2021, yet in the time they were open thousands of businesses took advantage of the scheme to help keep them afloat during tricky times.
If your company took on a Bounce Back Loan and is now insolvent (i.e. it can’t back its debts, including the outstanding Bounce Back Loan) and you’re looking to close it down, you will want to know the best way to do this.
In this guide, Clarke Bell looks at whether a company with an outstanding Bounce Back Loan can be dissolved, and what other routes are available.
Bounce Back Loan Scheme explained
As we have mentioned, The Bounce Back Loan Scheme was introduced by the government to help small to medium businesses that were struggling during the coronavirus pandemic.
The scheme was initially introduced to help those businesses that were excluded from the Coronavirus Business Interruption Scheme. It was designed to offer a quick cash injection to businesses and to help keep them afloat.
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How do Bounce Back Loans work?
The loans are interest free for the first 18 months. After 18 months there is an interest rate of 2.5% per year. Repayments can be made over 10 years or less depending on what you decide is best for you.
In early 2021, some key changes were introduced when the government rolled out its Pay as You Grow Scheme. This means that loan repayments were made to be more flexible over fears that businesses would struggle to pay back money they owed as the first repayments were due from May 2021.
Now, companies can:
- Delay loan repayments by a further 6 months
- Extend the length of the loan from 6 years to 10 years at the same interest rates
- Make interest-only payments for 6 months.
Although more flexible repayment methods have now been introduced, many businesses are still be struggling and are now considering closing down.
If this is the case, you will need to know what your options are.
Can a company with an outstanding Bounce Back Loan be dissolved?
Dissolution is the process of closing down a company as a legal entity.
A company can only be dissolved if it hasn’t:
- traded or sold off any stock in the last three months
- changed names in the last three months; or
- been threatened with liquidation and there are no agreements in place to repay creditors – such as a Company Voluntary Arrangement (CVA.)
For this reason, if you try and dissolve a company with an outstanding Bounce Back Loan, or any other debt, then it will most likely be objected to by HMRC. This is known as ‘Objection to Company Strike Off Notice.’
It is important to be aware that there is new development with The Insolvency Service gaining the power to investigate the directors of dissolved companies – i.e. to make sure that people are not abusing the system.
We have been shocked to see that there are insolvency firms who are promoting a service which claims that if directors used their services, then they would not be subject to a liquidator’s investigation. This is flouting the rules. Any reputable Insolvency Practitioner will tell you than the investigation is a necessary part of the liquidation process and it should not be overlooked.
The Insolvency Service’s new powers will address this matter and ensure that the tens of thousands of companies which are dissolved each year have been closed properly.
If a director has abused the company dissolution process, they may well find in years to come that HMRC will request that the dissolution be overturned because the company owes them money. We have seen cases where this happened 3 years after the company was (incorrectly) dissolved.
The directors who we help do not want this worry hanging over them. They prefer to close down their company in the correct manner.
How to close a company with an outstanding Bounce Back Loan
Although you cannot dissolve a company with an outstanding Bounce Back Loan, there are other ways to close your company.
After all, an outstanding Bounce Back Loan is classified as a debt like any other. This means it is possible to close the company in the right way.
To close an insolvent limited company with an outstanding Bounce Back Loan, a Creditors’ Voluntary Liquidation (CVL) is normally the best option.
Closing a company with a CVL
A Creditors’ Voluntary Liquidation is a formal insolvency process that liquidates an insolvent company. Meaning it ceases to trade and operate. Once the company’s assets and liabilities have been dealt with, the company can then be formally dissolved and struck off the Companies House Registrar.
As a formal insolvency process, a licensed Insolvency Practitioner is legally required to carry out the process. It is a completely voluntary process that is applied for by the company directors and shareholders at a time that is right for them.
Although the process is initiated by the company directors, for a CVL to be carried out, at least 75% of shareholders must agree.
A CVL is a good option for companies that are insolvent and don’t have the funds to repay their debts, but wish to avoid being forced into compulsory liquidation. (Here, a company is forced to liquidate by creditors who issue a winding-up petition to the court when they are owed £750 or more and have had payment demands gone unfulfilled.)
You should consider a Creditors’ Voluntary Liquidation if:
- The company has run out of cash and can no longer pay its bills or debts
- The company is no longer viable
- Creditors are threatening you with a winding-up petition to retrieve money owed to them
- You are worried that you will build up more debts
If this is the case, a CVL will allow you to close the company quickly and professionally. This will leave more options open to you in the future, such as opening another company.
Close a company with an outstanding Bounce Back Loan with the help of Clarke Bell
If your company has taken on an outstanding Bounce Back Loan but is still unsustainable and is struggling to meet its debt obligations, it’s best to act quickly to ensure the situation does not get any worse.
The good news is that an outstanding Bounce Back Loan can be treated as any other debt. This means a company with an outstanding Bounce Back Loan can be liquidated through Creditors’ Voluntary Liquidation.
It is worth remembering that you cannot simply dissolve a company with an outstanding Bounce Back Loan. Your liabilities and assets must first be dealt with through liquidation.
Now you know the best route forward, get in touch with Clarke Bell to see how we can help.
We have a friendly team of experienced licensed Insolvency Practitioners. We will work with you closely to get you on the right path. With over 25 years’ experience, you can rest assured that we will find the best solution for you going forward.
Get in touch and see how we can help you today.