Closing a company is rarely a straightforward decision, and when a Bounce Back Loan (BBL) is involved, the rules become even more complex. Many directors assume they can simply apply to dissolve their company through Companies House and walk away. But if there’s an outstanding BBL, the reality is very different.
A Bounce Back Loan, although government-backed, is still a company debt. Your business cannot be struck off the register while money remains unpaid. In these circumstances, creditors or the Insolvency Service often block attempts to dissolve, and in some cases, directors face further investigation into how loan funds were used.
This article explains why dissolving a company with a BBL isn’t usually possible, the risks of trying to do so, and the legitimate routes available, such as a Creditors’ Voluntary Liquidation (CVL). If you’re a director considering closure, understanding these rules will help you avoid costly mistakes, protect yourself from personal liability, and make informed decisions about the future of your business.
If you are considering striking off your company, you should seek professional advice from licensed insolvency practitioners such as ourselves. We can help you understand your options via free, expert advice.
Understanding the Basics of Company Dissolution and Bounce Back Loans
Company dissolution, or “striking off,” removes a company from the Companies House register, ending its legal existence. This is pursued when a company is no longer needed and has settled all its debts. However, the situation becomes more complex if there are outstanding obligations, such as a Bounce Back Loan (BBL).
A Bounce Back Loan is a government-backed loan to support businesses during challenging times. Despite this backing, it remains a debt owed by the company. Under UK law, a company with outstanding debts, including BBLs, cannot be dissolved through the standard strike-off process.
An unpaid BBL means creditors or the Insolvency Service can object to the dissolution. Dissolving a company with unresolved debts could be seen as an attempt to evade financial responsibilities. Understanding these basics clarifies why an unpaid BBL complicates a straightforward strike-off and highlights the need for alternative closure methods.
Why Companies with Outstanding BBLs Usually Can’t Be Dissolved
Companies with outstanding debts, including Bounce Back Loans (BBLs), cannot typically be dissolved. Under UK law, a company can only be dissolved if it has no outstanding liabilities. The BBL, despite being government-backed, remains a repayable debt. Creditors, such as banks or HM Government, can object to a company’s strike-off application if debts remain unpaid, effectively blocking the dissolution process.
Some directors might mistakenly believe they can dissolve their company and “walk away” from their obligations. However, this often leads to complications. Creditors or the Insolvency Service may intervene, objecting to the dissolution due to the outstanding BBL, which can result in the company being reinstated to pursue the debt.
When applying for a strike-off, it is crucial to disclose all outstanding liabilities fully. Ignoring these rules can lead to serious consequences:
Investigation by the Insolvency Service: Directors may face scrutiny for attempting to dissolve a company with unpaid debts.
Reinstatement of the Company: Creditors can apply to restore the company to pursue outstanding debts.
Understanding these risks is vital for directors considering dissolution while owing a BBL.
Risks of Attempting Improper Dissolution
Dissolving a company with an outstanding Bounce Back Loan (BBL) without following formal procedures can lead to severe repercussions. Directors who take this route risk triggering investigations by the Insolvency Service, which scrutinises any attempt to evade debts. If wrongful or fraudulent activities are uncovered, directors may face personal liability for the unpaid BBL.
The legal risks are significant. Attempting dissolution while knowingly owing a BBL is considered misconduct under the Companies Act 2006. This can lead to director disqualification, preventing you from managing or forming another company for up to 15 years. Financially, you could be held personally liable for the debt if found guilty of misconduct, negating the limited liability protection typically afforded by a company structure.
Reputational damage is another serious consequence. Being investigated or disqualified can tarnish your professional standing, making engaging in future business ventures difficult. Therefore, it is crucial to understand that improper dissolution is not just a procedural misstep but a potential legal and financial pitfall with long-lasting effects.
Legitimate Ways to Close a Company with a BBL
The legal route is to close a UK limited company with an outstanding Bounce Back Loan (BBL) through a Creditors’ Voluntary Liquidation (CVL). This formal insolvency procedure is necessary for companies unable to pay their debts. Unlike dissolution, which is not an option for companies with unpaid debts, a CVL ensures compliance with UK insolvency law and protects directors from personal liability.
The CVL process involves several key steps:
Appointing an Insolvency Practitioner (IP): Directors must engage a licensed IP to manage the liquidation. The IP will assess the company’s financial situation and guide the directors.
Meeting with Creditors: Directors must call a meeting of creditors to present a Statement of Affairs, detailing the company’s assets and liabilities. Creditors then vote on appointing the IP as liquidator.
Realising Assets: The IP takes control of the company, ceases trading activities, and sells its assets. The proceeds are used to repay creditors in a legally mandated order.
Distributing Proceeds: Any funds realised from asset sales are distributed to creditors according to their priority.
While a CVL is more formal and potentially more costly than dissolution, it is essential for companies with outstanding debts, such as a BBL. This process ensures legal compliance and mitigates risks such as personal liability for directors. By choosing a CVL, directors demonstrate their commitment to fulfilling their statutory duties and protecting creditor interests.
How Directors Can Protect Themselves
Directors should take several proactive steps to protect themselves when facing the closure of a company with an outstanding Bounce-Back Loan (BBL), directors should take several proactive steps. Firstly, it is crucial to maintain accurate records of how the BBL funds were utilised. This documentation is evidence of responsible financial management, which is essential if creditors or the Insolvency Service request information.
Cooperation is vital. Directors should communicate openly and honestly with creditors or the Insolvency Service. Transparency and a genuine attempt to manage debts responsibly can significantly reduce the risk of accusations such as wrongful trading.
Seeking timely professional advice is another critical precaution. Consulting with an insolvency practitioner can clarify legal obligations and help navigate complex financial situations. Here are some practical tips for directors:
Record-Keeping: Maintain detailed records of all financial transactions, especially those involving BBL funds.
Honest Communication: Be transparent with creditors and regulatory bodies.
Collaboration: Work closely with insolvency practitioners to ensure compliance with legal requirements.
Taking these steps can help directors mitigate risks and avoid personal liability, ensuring they act within the bounds of UK insolvency law.
Seeking Professional Advice and Next Steps
Consulting a licensed insolvency practitioner is essential if you’re unsure about closing your company with an outstanding Bounce Back Loan (BBL). Expert advice can help you assess your options, ensure compliance with legal requirements, and minimise risks. Before reaching out, gather the following information to streamline the consultation process:
Loan agreements and repayment schedules
Recent financial statements and records
Details of any other outstanding debts
A list of company assets and liabilities
Taking proper action is urgent. Attempting a risky shortcut, such as dissolving without addressing debts, can lead to severe consequences, including personal liability. Prioritise professional guidance to navigate this complex situation safely.
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Bounce Back Loan FAQs
If I’ve partly repaid the Bounce Back Loan, can I still dissolve my company?
No, even if you have partially repaid the Bounce Back Loan (BBL), your company cannot be dissolved if any amount remains outstanding. Under UK law, a company must have no outstanding debts to be eligible for dissolution. Instead, consider a Creditors’ Voluntary Liquidation (CVL) to close your company legally and responsibly.
What happens if the Insolvency Service rejects my strike-off application?
If your strike-off application is rejected, your company remains active on the Companies House register. The rejection often occurs due to outstanding debts or objections from creditors. In this case, consult an insolvency practitioner to explore alternative closure methods like a CVL.
Will I be personally liable if my company fails to repay the Bounce Back Loan?
Generally, directors are not personally liable for BBLs as they do not require personal guarantees. However, personal liability can arise if funds were misused or if there was misconduct. To protect yourself, ensure all loan funds are used appropriately and seek professional advice if your company struggles financially.
Does it matter if I used the BBL proceeds for personal expenses?
Yes, using BBL funds for personal expenses is considered misuse and can lead to serious consequences, including personal liability and director disqualification. Maintaining clear records showing that all loan funds were used for legitimate business purposes is crucial.
How does dissolution differ in Scotland or Northern Ireland?
The dissolution process is similar across the UK, but regional legal procedures and requirements may vary. It is advisable to consult with a local insolvency expert familiar with the specific regulations in Scotland or Northern Ireland to ensure compliance.
What if I can’t afford liquidation fees?
Discuss payment options with an insolvency practitioner if liquidation fees are a concern. Some practitioners offer flexible payment plans or may agree to defer fees until assets are realised during liquidation. Acting promptly can help manage costs and avoid further financial complications.
Could a BBL impact my ability to start another business?
Having an outstanding BBL does not directly prevent you from starting another business. However, any misconduct related to the loan could affect your reputation and eligibility as a director. Ensure all previous business obligations are appropriately resolved before embarking on new ventures.
Article sources
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