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Bounce Back Loans

Author: Sheryl Armer of Adcroft Hilton

The bounce back loan was introduced by the Government in March 2020. It was launched to assist =companies who have been affected by the Pandemic. However, as the Pandemic continues a lot of businesses are finding that the bounce back loan isn’t enough. Even those who are also using the Furlough Scheme.

Adcroft Hilton seeing an increasing number of enquiries. Particularly from Directors who are concerned about the level of debt and how they will repay. In otherwise normal circumstances they would believe their business is viable. The Government have now announced extended terms and a further six month payment break for bounce back loans. However, this doesn’t assist if the company has other existing debt.   

In circumstances such as this, one of the options available to the director could be to propose a Company Voluntary Arrangement (‘CVA’) to the company creditors. It is an Arrangement to pay creditors over a fixed period. Alternatively, it could be based upon a lump sum payment being offered. It is a legally binding agreement and if creditors agree to the proposal, the company can continue trading. The proposals could even be put forward if there is currently no turnover or trading surplus to offer creditors at the moment. Further information regarding CVA’s can be found here.

But what if the company is unlikely to survive?

Some of the enquiries we are receiving are from directors who took advantage of the bounce back loan scheme. However, they now believe that the company is no longer viable. In a lot of cases, the bounce back loan is the only debt outstanding. (Albeit, HMRC generally also have an outstanding debt). In these circumstances the director often thinks that by dissolving the company via Companies House this will then write off the loan for the company. Or that given that the Government have guaranteed the Banks, the Bank will still receive their money back. 

In reality, the bounce back loan is like any other debt. It is unlikely that Companies House will allow the company to dissolve.   Furthermore, whilst the Banks may be guaranteed by the Government they are still responsible for attempting to recover the loan themselves.

If the company does get dissolved, it may be reinstated by HMRC or the Bank. Therefore, the director is back to the same position. In fact, we are aware that a number of Banks are actively taking steps to reinstate companies that have taken out a bounce bank loan and subsequently dissolved.

Creditors Voluntary Liquidation

In these circumstances there is generally only one option and that is to place the Company into Creditors Voluntary Liquidation (‘CVL’). The appointed liquidator would then realise any assets in the company to pay for the liquidation. If the company has no assets, the director may be concerned that they cannot afford to place the company into CVL.  However, if the company has traded for longer than two years and the director has received their salary via the PAYE scheme, it may be possible for them to claim redundancy from the Redundancy Payments Service.   

Want More Information?

Further information regarding this and also the benefits of Liquidating a company rather than simply dissolving can be found in the video below:

It is important to get advice from a Licenced Insolvency Practitioner like Adcroft Hilton as soon as the director believes that the company may be unable to repay any debts.  We offer free initial advice with no obligation.  If you have any clients who may require some advice please contact Sonya on 01253 299399 or 07792013505. 

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