During the Covid 19 Pandemic Bounce Back loans were designed to enable businesses to access finance quicker than traditional business loans.
The application process was very simple and allowed businesses to apply for loans from £2,000 to 25% of their turnover, to a maximum loan of £50,000, at a fixed low interest rate of 2.5%. The lender initially set the repayment term as 6 years, with the 1st year’s interest covered by the government, with lenders having a full government-backed guarantee against both the capital and interest.
As the pandemic continued, there were some alterations to the terms of existing loans, allowing borrowers to extend their repayment period up to 10 years, to reduce their monthly payments for 6 months by paying interest only, and taking a repayment holiday of up to 6 months. See our blog on this here
The borrower always remained fully liable for the debt.
However, there are many situations where the situation changes for the Directors, Business owners or the Business and there are implications that come along with this:
One of our trusted contacts, Louise Freestone, from Opus Restructuring and Insolvency has detailed various different scenarios below:
MY COMPANY HAS CEASED TO TRADE & IS INSOLVENT, OR I DO NOT WANT TO TRADE ANYMORE, OR THE COMPANY IS INSOLVENT AND I DO NOT THINK I CAN CARRY ON TRADING…WHAT CAN I DO?
These sadly are common themes. If a company is no longer trading and cannot afford to repay the lending, then there is very little a director can do, as the money is simply not there. Similarly, if a company is trading but is insolvent, it is limited with regard to its repayment potential. The bank has the ultimate option of issuing a winding-up petition if the money is not repaid. I don’t know whether or how quickly that might happen but I suspect the amount outstanding will be a factor, as will how it was spent by the client. If the loan provider is also the current account provider – they will have visibility of this. Below are some factors which may determine a strategy:
Co is trading
The director could speak to the lender to try and negotiate a settlement, or a more favourable repayment plan. If the business is viable, there are insolvency options like an Administration or a CVA that can be considered.
Co is no longer trading and has assets
The director could liquidate the company with any assets being realised to pay the costs and expenses of the liquidation and then if applicable, the creditors, in order of priority. The company would be closed down and the debts are written off.
Co is no longer trading and doesn’t have assets
If the company has no assets, then the director has the option of paying for the liquidation process personally. Should they be unwilling to do this, or not be able to, then the only option available would be to do nothing. Whilst the company won’t get struck off anytime soon, I can’t see a scenario where companies sit on the Register for years, with accounts not being filed, when there is no trading activity and a creditor is not prepared to issue a winding-up petition. However, there is no precedent yet for action being taken against companies in this position.
Spent the loan in the business
No issues here if the director decides to liquidate or do nothing.
Spent the loan outside of the business
This may be an issue for the director if a winding-up order was made. The Official Receiver or an IP may be appointed to recover money spent inappropriately. The director could take control and voluntarily liquidate, to avoid that happening. It would then be a discussion with the liquidator about a suitable (where applicable) repayment plan. The amount to repay is determined on a case by case basis.
If anyone is owed money for (wages/holiday/redundancy/notice) they can only claim from the Government if the company is in a formal insolvency process, so this may be a reason to take action versus the ‘do nothing’ option.
Bounce Back Loan Repayment Issues
Ultimately, every company position is different, so please feel free to pass my details on to any suitable client and I can chat through options and potential outcomes, via their particular scenario.
Opus Restructuring and Insolvency
Part of the Opus Business Advisory Group
D: 0115 666 8231