When a company becomes unprofitable, as is the future of many to some extent, a strike-off can be a good idea. By doing so, directors can dispose of their company’s assets and close it down. This way, directors can benefit from the retained profits of their companies, before prolonged unprofitability makes a financial failure out of an otherwise successful company.
While a company strike-off is fairly straightforward and viable for solvent companies, this is not true for insolvent companies. Despite this, plenty of directors are hopeful that their company’s debts can be written off at the end of a company strike-off. This hope is shared by directors that have a Bounce Back Loan they cannot pay, leading to the question – is it possible to strike off a company with a Bounce Back Loan?
In this article, Clarke Bell will answer this question, discussing this possibility, the strike-off process, and what alternatives are available.
What is a Bounce Back Loan?
Bounce Back Loans were introduced as part of the Bounce Back Loan Scheme (BBLS) during the height of the Coronavirus pandemic. These loans were intended for small businesses, offering financial assistance to companies hit particularly hard. Bounce Back Loans allowed companies to obtain 25% of their annual turnover, up to a maximum of £50,000. What’s more, these loans were completely guaranteed by the government. This meant that directors could apply for a Bounce Back Loan without having to provide any collateral assets or even a personal guarantee. For some companies, this was enough to see them through the worst of it.
However, few expected the pandemic, and the lockdown measures to last so long. The financial effect this had on many companies was devastating, even with the aid of a Bounce Back Loan. As such, these companies hit particularly hard were forced to consider insolvency proceedings.
What is a company strike off?
A company strike off, often referred to as a dissolution, is a formal process that winds up a company and removes it from the register at Companies House. It is a popular alternative to liquidation, used mainly by smaller companies with little retained profits. Company strike-offs are considerably cheap, with an online submission costing only £8. It can be initiated voluntarily, starting with the submission of a DS01 form by a company’s directors. Once the application has been submitted and the process carried out, the company in question will be struck off and cease to exist.
Can I strike-off a company with a Bounce Back Loan?
As a strike-off is a low-cost way to close a company, directors of insolvent companies may see it as an appealing option, possibly even hoping that their unpaid debts get written off. However, it is unlikely that a company strike-off will achieve the desired results.
Company strike-offs are not intended for insolvent companies, allowing creditors to object to the process and even take further action. Once a company applies for a strike-off, it will be made public in the Gazette for a period of three months. While it is possible for a company’s creditors not to notice this publication, it is highly unlikely and should not be counted on. This is especially true for companies that have made multiple submissions, as creditors will likely pay close attention after the first attempt is noticed. Because of this, a company strike-off is not a suitable way of dealing with Bounce Back Loan debt.
Even if a company manages to sneak under its creditors’ radar, they can petition the courts to reinstate the company, then place it into compulsory liquidation. This will essentially take the company out of its directors’ hands, liquidating the assets and distributing the proceeds amongst creditors. This process also carries penalties for the responsible directors, such as the disqualification of their director’s license, personal liability for company debts, and potentially even a prison sentence. As such, it is best to avoid this scenario.
Alternative solutions to your company’s Bounce Back Loan debt
If your company cannot repay its Bounce Back Loan, it likely meets the criteria for insolvency. As such, attempting to close through a company strike-off is not a good idea, and will likely cause more problems than it will solve. However, there are alternative methods of closing your company that tailor to insolvent companies, allowing you to close even with Bounce Back Loan debt.
The best method of closing an insolvent company, with Bounce Back Loan debt or otherwise, is a Creditors’ Voluntary Liquidation (CVL). This process allows directors to voluntarily liquidate their company, with the help of a licensed insolvency practitioner of their choosing. Once appointed, this insolvency practitioner will begin liquidating the company, distributing the proceeds first amongst creditors, then amongst shareholders if any funds remain. As such, using a CVL gives you an efficient means to liquidate your company, with the peace of mind of professional help.
A Creditors’ Voluntary Liquidation also offers two other main benefits, which are incredibly useful to companies with Bounce Back Loan debt. Firstly, any company that enters into a CVL is protected from creditors that would like to take legal action against it. This means that your company cannot be placed into a compulsory liquidation during this procedure. Secondly, if a company enters into a CVL, yet does not have enough funds to repay all its creditors in the end, the remaining debt is written off. However, you will not receive this protection if you have signed a personal guarantee as part of a loan agreement. As Bounce Back Loans did not require a personal guarantee, this is not an issue. If you need a solution to your Bounce Back Loan debt, there is no better option than a CVL.
Let Clarke Bell help
If your company cannot repay its Bounce Back Loan debt, it might be time to consider the CVL procedure. While this is certainly a difficult decision to make, Clarke Bell can be there to help guide you through it. We have over 28 years of experience in helping companies find solutions to their debt problems, and we can do the same for yours. For a free no-obligation consultation, don’t hesitate to contact us today and find out what we can do for you.