Many businesses are finding difficulties repaying. What can they do?
Bounce back loans or BBLs were introduced by the Government in response to the Covid 19 pandemic which had hit businesses hard and formed part of an array of Government backed financial measures to assist. However, many businesses are finding it difficult to make the repayments. In this article we examine why this is and what directors can do. A key option is to take advice from a licenced Insolvency Practitioner, as Clive Fortis who heads up our Bournemouth office comments.
A quick reminder about the structure of a BBL
The idea was that businesses could apply for a loan from £2,000 up to £50,000, depending on turnover. Any interest due was also guaranteed in the first 12 months through a Business Interruption Payment, and lenders benefitted from a 100% Government backed guarantee. There was an additional benefit in that with a limited company there would be no personal guarantee taken from the director/s.
Sadly, the system has been abused and many £millions of loans have been cancelled
Unfortunately, not all applications were genuine, and as a result there have already been some £240 Million of loans cancelled due to defaulters who have failed to repay the loans. This has resulted in lenders becoming harder on those who still owe the loans.
The loans were promoted so that they could be used for business related activities and not for personal use, and this has attracted a good deal of adverse media attention focussing on those that have abused the system.
Many businesses cannot repay the loans. Directors are asking us what can they do? Getting the right advice is vital
This has caused confusion amongst many businesses who have taken out a BBL and now find themselves in a position where they cannot repay the loan. The question now being asked by many directors is what can they do?
Clive Fortis warns: “If a Company is insolvent and carries on trading with knowledge of insolvency, then the director/s could be guilty of wrongful trading which could mean personal liability for the Company’s liabilities. The obligations and offences that directors could fall foul of, without the right advice, can soon mount up and become a minefield for the unwary.”
Some directors have considered using the strike off procedure. Our Insolvency Practitioners advise against this
There are some that have considered using the strike off procedure. This is where a Company files a notice of its intention to have it struck off the Registrar’s file. This, on the face of it, seems a reasonable solution, however, the strike off procedure is intended for use by Company’s who are dormant, and with no liabilities. If there is an outstanding BBL then the company would be insolvent, and for that reason lenders have been instructed to object to these notices and block such an application.
The improper use of the strike off procedure could also have serious ramifications for the director/s misusing this procedure, as even if they were successful in getting the strike off, new legislation now allows the reinstatement of struck off Companies to the Register. Such director/s could see themselves being disqualified from being a director of a Company or involved in its management for a period of up to 15 years because of these actions, which could be interpreted as an abuse of process.
Always seek the advice of a licensed Insolvency Practitioner
Clive Fortis points out that: “the solution to these issues is to seek the advice of a licenced Insolvency Practitioner who can advise director/s on their obligations as well as their options. This could include an insolvent Company going into Creditors Voluntary Liquidation.”
An initial consultation meeting with one of Antony Batty & Company LLP’s Licensed Insolvency practitioners would be free of charge and will provide director/s with the information that they require in order to make an informed decision on how the business should be directed.
If you are concerned about the financial position of your company and are worried about not being able to repay a Bounce Back Loan, please contact us or call one of our offices for an initial free of charge, confidential and no obligation discussion.