No business owner wants to be in a position of having to close their business. Still, when hard times fall, or financial situations change, you may find yourself with no choice other than to take closing your business as an option.
Before closing your business, you will need to ensure proper financial management to not be in a position where you are being chased by debtors or HMRC.
When considering closing their business, one question that is often on business owners’ minds is if they can still progress with closure with an outstanding bounce-back loan.
In the article, we will outline information surrounding Bounce Back Loans and the considerations you must take when opting to close your business while monies are still owed.
What is a Bounce Back Loan?
During the Coronavirus pandemic, the government offered UK businesses the Bounce Back Loan to stabilise any financial hits businesses may have experienced due to closures, lockdowns, and changes to operations. The Bounce Back Loan has been detrimental in assisting business owners with vital financial commitments such as rent, energy bills and other overheads that were essential to keeping operations flowing.
The loan was offered on a 12-month interest-free period and came with the guarantee of being 100% government backed for lenders. Business owners must remember that the Bounce Back Loan is still like any other loan and must be paid back in full regardless of their financial situation.
What happens to my Bounce Back Loan if my company is in liquidation?
When you begin the process of liquidating your company assets (turning them into cash), that cash then becomes liable for paying any debts you owe to creditors – including your Bounce Back Loan. During the liquidation process, your Bounce Back Loan will be identified as an unsecured debt which means it isn’t secured against any of your company assets.
With all things, there is a hierarchy to which of your company debts will get paid when you are in liquidation, and unsecured debts are usually very low on the list. Due to them being 100% government-backed, lenders can be assured that they will get their loaned funds back in full with no risk.
Am I personally liable for my Bounce Back Loan when I close my company?
The answer to this, if used correctly, will be no.
However, if any funds from the Bounce Back Loan were used for personal gain and not for the financial benefit of the business, you may find yourself financially liable for paying back the money used. The Bounce Back Loan can be justified for business purposes such as paying employees, covering creditor invoices, investing in equipment and other business-related purchases, and reasonable expenses. On the other hand, if it becomes apparent that you have used the loan for personal investment or expenses not pertaining to the business operations, then you will be liable in full regardless of if the company is in liquidation or not, so this is one to be majorly cautious of!
As part of the insolvency process, your trusted insolvency practitioner, such as Fortis, will do thorough background checks on the financial movements of the Bounce Back Loans amongst directors to ensure no monies are owed and that debts can be adequately assessed. This shouldn’t cause any worry; it is correct to keep every stage of the liquidation and insolvency process smooth and keep you safe from any unnecessary liabilities.
The Bounce Back Loan Break Down
You can 100% close your company if you still have an active Bounce Back Loan so long as you have managed your Bounce Back funds appropriately. If you haven’t, you may still have personal liability for monies used for non-business-related activities.
If appropriately managed, your Bounce Back Loan will be assessed as an unsecured loan and added to a list of creditors awaiting payment. Due to the hierarchy of payment terms, usually favouring HMRC, insolvency practitioners, secured and preferential creditors and floating charge holders, unsecured loans typically find themselves one of the last to be paid from the company’s liquidated funds. Therefore, if funds cannot be paid with monies remaining after this, it will be up to the lender to retrieve the remaining debt against the government.