Many businesses took advantage of government-backed financial support during the pandemic, including the Coronavirus Business Interruption Loan Scheme (CBILS) [1]Source. BRITISH BUSINESS BANK “CBILS” , as they sought to manage cash flow and the intensely difficult trading conditions. However, as the rising insolvency figures show, this borrowing did not guarantee survival.
If your limited company is now insolvent, making the CBILS loan repayments impossible, you may be wondering if there will still be demands for payment after the business has been dissolved and if there will be any personal liability.
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What Happens If My Company Can’t Repay a CBILS Loan?
If your company is unable to repay a CBILS loan, it could have serious consequences. Defaulting on the loan may harm your credit rating and business reputation. Furthermore, the lender may take legal action to recover the outstanding debt.
There are a few options available to address the situation. Firstly, you could negotiate with the lender and discuss alternative repayment plans. They may be willing to extend the repayment period or offer other solutions.
Another option would be to seek other sources of funding to repay the CBILS loan, such as asset refinancing or investment.
Lastly, it would be wise to consider consulting with insolvency practitioners such as ourselves to assess your company’s financial situation and explore solutions. These might range from business rescue procedures, such as a Company Voluntary Arrangement, to closing the company via liquidation.
Will my CBILS Loan be Written Off During Liquidation?
In liquidation, if your CBILS loan was under £250,000 and there’s no wrongful conduct, the loan essentially dies with the company without personal financial impact on the directors.
For personally guaranteed loans, you should expect these to be called in.
Here’s what typically happens:
If your company goes into liquidation, the appointed liquidator will first seek to recover what they can from the company’s assets to repay creditors.
For the unpaid portion of the CBILS loan, the lender can claim a portion of the loss from the government, thanks to the guarantee that covers a significant percentage of the loan amount.
If you, as a director, provided personal guarantees for the CBILS loan (which was not a requirement for CBILS loans under £250,000), the lender might seek repayment from your personal assets if the company’s assets are insufficient to cover the debt.
During liquidation, there will be an investigation into the company’s affairs and the conduct of its directors. If it’s found that the company was wrongfully trading while insolvent or there were breaches of duty, directors could be held personally liable for the company’s debts, including CBILS loans, although this would depend on the specifics of the wrongdoing.
Personal Liability for a CBILS Loan
If the loan was for over £250,000, then lenders were able to demand a personal guarantee. However, there are limitations in terms of what can be recovered from the company director – it was not possible to take a charge on the director’s main home, and it had to be limited to 20% of the debt.
Therefore during the liquidation, the lender will make efforts to obtain this 20% and this is where the director does have personal liability.
Check the Terms of Your CBILS loan
It is important that a company director is aware of the status of all their business debts. They should ensure that their CBILS loan was provided subject to the provisions outlined by the government. It is possible that a loan from a bank or other lender may have been provided on other terms, and directors should see if any personal guarantee is included.
What if Director Misconduct Occurred?
If a company director was responsible for continuing to trade when they were knowingly insolvent, this is known as wrongful trading. During liquidation, the insolvency practitioner is obliged to investigate if they believe director misconduct has occurred. Under these circumstances, it is possible a lender may seek to recover the debt directly from the director – and this could include via personal assets.
In the case of a CBILS loan, and indeed all other debts, efforts may be made to recoup sums from the director personally. The director may be subject to investigation by the government’s Insolvency Service and also face sanctions such as fines and disqualification from running other companies.
Take Advice on Liquidation and Your CBILS Loan
A licensed insolvency practitioner must oversee the liquidation. However, directors can benefit enormously if they take professional advice at the earliest stage possible. It is always better for liquidation to be voluntary, such as a creditors’ voluntary liquidation, rather than a compulsory winding up.
Our expert insolvency practitioners are here for a free consultation, phone call or live chat to help you explore your options.
References
The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.
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