How can a Company with an outstanding Bounce Back Loan be closed?

Bounce Back Loan repayments started in May 2021. Some businesses will not be able to repay.

The Bounce Back Loan scheme ended on 31st March 2021, through which over 1.5 million businesses borrowed £46.5 billion to help keep them trading during the Covid-19 pandemic lockdowns. Repayments began in May 2021, and whilst there is no doubt that BBLs kept many companies afloat, sadly not all will survive, and that will mean insolvency and liquidation for some. In this article we look at the question as to how a company with an outstanding BBL can be closed.

The simple answer is that although it is possible for a company with an outstanding BBL to be liquidated through a dissolution process, the likelihood is that such a dissolution would attract objections because the debt is an unsecured one. Under such circumstances, the correct procedure to use to close a company with an outstanding bounce back loan is a Creditors Voluntary Liquidation.

When can a Limited Company be dissolved?

Dissolving a Limited Company is also known as striking off and simply means removing the name of the business from the official register at Companies House, after which it ceases to exist. However, dissolving a limited company can only be used for companies that have no outstanding debts or no money left in the company, and should not be seen as a way to evade creditors. The criteria for striking off are:

If a company with an outstanding BBL tries to dissolve, it is likely objections will be raised

The above criteria are clear, so if a director attempts to dissolve a company with an outstanding bounce back loan, or indeed any other type of debt, an ‘Objection to Company Strike Off Notice’ will almost certainly be raised by creditors, including HMRC, who of course are the ultimate funder of BBLs through the British Business Bank.

Inevitably, an outstanding BBL that cannot be repaid is a strong sign of financial difficulties and the sooner the directors take advice and action, the more options are available, from recovery procedures, such as Company Voluntary Arrangements and Company Administrations to procedures to close a company down if it cannot be saved, which include Creditors Voluntary Liquidations (CVL)

Closing a limited company with an outstanding bounce back loan using a CVL

A company with an outstanding bounce back loan can be closed down. This is because a bounce back loan is classed as a debt in the same way as any other. The fact that BBLs don’t have a personal guarantee as part of them doesn’t change anything else. This means that a limited company with an outstanding bounce back loan must be closed down in the right way, by using a CVL, and not by striking it off.

As licensed insolvency practitioners, companies can approach us direct, or via their accountant, and we will look closely at their situation before recommending the best course of action. If a CVL is considered appropriate, the outcome will be the closure of the company with all unsecured debts being written off.

To conclude: Dissolution should not be used to close a company with an outstanding BBL

A company with an outstanding bounce back loan should not be liquidated through a dissolution. This is because a dissolution can only be used by companies that fit the criteria, including: companies that have stopped trading, have no money left in the company and have no unpaid debts. A company with an outstanding bounce back loan must go through a creditors voluntary liquidation in order to close down.

Click here to see our useful Creditors Voluntary Liquidation infographic.

In the meantime, if you need our help and advice regarding CVLs or in any of our other specialist insolvency areas, please contact us or call any of our offices, below, for a FREE initial discussion on the ‘phone or over a coffee.

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