Many business owners are feeling anxious these days, and it hasn’t been simple for them owing to financial difficulties. The government gave firms that met specific criteria the opportunity to apply for a bounce back loan, but is it feasible for those businesses to bounce back in the current difficult economic climate?
As a result of the difficult trading conditions that many small businesses are facing, today, we’ll look at whether a firm qualifies for dissolution if it has a currently outstanding bounce back loan.
The bounce back loan scheme was launched at a time when many organisations were failing, and it provided much-needed financial assistance. The loans were a government backed bank loan in which a government guarantee was in place should the company default on the outstanding balance.
With so much uncertainty about whether businesses would have to close and how this might affect their workers and clients, as well as essential materials, the bounce back loan helped to relieve some of the anxiety.
Unfortunately, with spiralling inflation and increasingly higher energy costs, many businesses have continued to struggle this side of the pandemic and are contemplating closure.
Can I Strike Off With Bounce Back Loan Outstanding?
No, you cannot dissolve the company if you have not paid back your bounce back loan. If somebody has told you that this is an option, get a second opinion as they are wrong! You might be wondering what other options are available to you… What’s the difference between dissolving a company and liquidating it?
The fact is that they are quite different, and the one you’re allowed to utilise depends in large part on your company’s present situation. One of the most significant distinctions is the cost of each, with one costing merely £10 and the other costing at least £4800. Many company directors try to liquidate their firm when it’s simply not feasible due to company creditors wanting to recover outstanding debt.
If you didn’t take out the bounce back loan, you might have been advised to pay the £10 to apply for a dissolution of your firm with Companies House.
After submitting your application, you will be asked to send a letter to your creditors informing them of your financial status. They may determine that striking off is the best option for your company at this point because they will not receive any money if the business is struck off. Your company would be deleted from the register and cease to exist if this happens.
Further information regarding the company strike off process can be viewed on the Companies House website.
The criteria for application of a bounce bank loan was:
- They could provide evidence for the business having been negatively impacted by the Coronavirus pandemic.
- The application was to borrow between £2000 and £50,000.
- The directors can prove that the business was not already suffering from financial difficulty in December 2019.
- The UK business was still trading in March 2020.
The bounce back loans program avoided personal guarantees, which would have been welcome news to many company owners.
Government Legislation – New Laws For Companies Attempting to Strike Off
In 2019, the number of businesses that sought to be struck off increased by 743 percent. The government then introduced a new regulation in 2022 that was subsequently passed. Businesses are no longer permitted to close down their firm via this loophole while still owing a bounce back loan, according to the “Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill,” which is a brand-new legislation.
If you choose to shut down your limited company, be aware of the possible consequences. According to the bill, company directors who take this action may be required to pay compensation to creditors they owe money to. This means that if you took out bounce back loans and never paid any of them back, you could be held responsible for repaying at least some portion of the outstanding debt. Or, You will be personally liable for paying all the outstanding debts.
If you strike a company off the register, it can be reinstated within 20 years. This would make you responsible for any outstanding debts and might prevent you from being a director in the future.
When you submit a company dissolution application, it will be published in the London Gazette. Your creditors will have three months to raise an objection to the closure, and they very likely will.
Closing a Business With An Outstanding Bounce Back Loans (BBL)
Your only viable option if you’re thinking about closing your company with a bounce back loan is to go through the liquidation process for your limited company. This can be done either voluntarily or compulsorily depending on the state of your business. Do not try to do a company strike off if you have an outstanding bounce back loan as you will inevitably end up in a worse financial state than before, having to pay back all unsecured debts.
You should seek the advice of a licensed insolvency practitioner as soon as possible if you are concerned about liquidation and company closure, or even liquidation pricing. This might help you obtain the best possible outcome for your business. Keep in mind that, to move forward with a Creditors Voluntary Liquidation (CVL) you must go through a licensed insolvency Practitioner who will manage the liquidation on behalf of the company and its creditors.
Usually these are licensed through firms such as the Insolvency Practitioners Association. You can see any updates on your company file using Companies House on the Companies House Register.
For free confidential advice speak to us at Company Doctor on 0800 169 1536 or leave an enquiry on our website. We offer many types of insolvency service.