Navigating Bounce Back Loans: Repayment Concerns and Options for Business Owners
Introduction: Thomson Cooper understands the challenges businesses face when repaying Bounce Back Loans (BBLs) obtained during the pandemic. In this article, we address concerns and provide clarity on key topics, including the responsibility of businesses to repay loans and the implications of government security in cases of insolvency.
Repayment Responsibility and Government Security: Businesses are responsible for repaying BBLs, even though they are backed by the government. Typically, the BBLs were set up as an unsecured loan with no personal guarantee. Currently, the unpaid element of the loan will usually be written off when the business goes through an insolvency event. However, this might be affected in certain circumstances such as where there were any pre-existing debts or security at the time the loan was taken out,
Managing Insolvency: In company insolvency, debts are treated based on priority. BBLs as unsecured debts are considered, but their treatment depends on available assets and relevant regulations. Thomson Cooper's experienced team of insolvency professionals oversees the management of the company's affairs, ensuring fair treatment for all stakeholders. Creditors' claims are carefully assessed and prioritized accordingly. By following established procedures, Thomson Cooper ensures that debts are handled transparently, promoting the best possible outcome for employees, creditors, and customers involved in the insolvency process.
When an Insolvency Practitioner is appointed, part of their role involves reviewing the company’s financial affairs during the period prior to its insolvency. This includes considering the procurement of the BBL, and whether it was appropriately used by the company. There are three key areas the Insolvency Practitioner will consider during this review process:
- Did the company meet all of the required criteria in terms of eligibility for the BBL?
- Taking account of the terms and conditions associated with obtaining the loan, was the balance borrowed appropriate and in line with the turnover of the business?
- Were the funds obtained used wholly for appropriate business purposes?
The director should be aware that if any criteria are not met this is a reportable offence to the Insolvency Service which then reviews whether these former directors, in particular, have behaved in a way that makes them unsuitable for future involvement in company management. They also decide if it's necessary to take legal action to prevent them from being directors again in the future.
This includes, (but is not limited to):
- Failure to disclose a BBL in the statement of affairs
- Funds not being used for the benefit of the business
- Where there was no intention after receipt of the BBL to carry on trading or make an attempt to repay, the business not trading as of 1st March 2020. (A full list is available from the Insolvency Service)
Fraudulently obtaining a BBL carries severe consequences. Individuals involved may face criminal charges, fines and imprisonment. To illustrate, the Insolvency Service recently examined a case wherein a company director procured a £20,000 BBL while the company was, in fact, dormant. The director was subsequently convicted of this offense and received an 8-month prison term, in addition to a 7-year disqualification from serving as a company director.
It is essential to understand that despite fraudulently taking a BBL, it remains a debt that must be repaid. Failure to repay may lead to legal action and damage to personal and professional reputation.
A Compensation Order represents a legal avenue through which the Insolvency Service can recuperate funds from a former director. This recovery is intended for the benefit of the creditors who incurred losses due to the director's misconduct. The Insolvency Service can initiate the process of obtaining a compensation order when a director is already subject to a disqualification order or undertaking. Such action is warranted when the director's behaviour has led to financial losses for one or more creditors of the insolvent company.
The primary objective behind the issuance of a compensation order is to hold directors financially responsible for their improper conduct. In the context of BBLs, if it is determined that a loan was obtained fraudulently, there are instances where the legal team at the Insolvency Service will evaluate whether a compensation order should still be pursued, even if the loan has been repaid.
Conclusion: As businesses navigate the repayment phase of BBLs, where insolvency may be required, Thomson Cooper offers guidance and support. It is important to understand that businesses are responsible for repaying these loans, even with government security in place.
Seeking professional advice from Thomson Cooper's team of experts can help navigate any potential insolvency processes. By proactively addressing repayment concerns and upholding ethical practices, business owners can preserve their integrity and future financial well-being.
If you require more information or guidance, please contact Richard Gardiner, Head of our Corporate Recovery and Debt Solutions Department, at rgardiner@thomsoncooper.com or by phone at 01383 628800 or 07872 376105.
About the author
Richard Gardiner
Richard is Head of our Corporate Recovery and Debt Solutions Department.
He is a licensed Insolvency Practitioner with the Institute of Chartered Accountants of Scotland.
He manages a large team of managers and support staff who offer the complete spectrum of personal and business debt solutions available under Scottish legislation.