Can I strike a company off that still owes a Bounce Back Loan?
For some, the government’s Bounce Bank Loan Scheme (BBLS) hasn’t proved sufficient to secure the long-term survival of their company, leaving directors with the unfortunate question of what they should do. Many directors are being advised that striking their company off at companies house is the right thing to do. You can be forgiven for thinking this could be an easier option than going into liquidation. You can strike a company off for £10 and liquidating with an insolvency practitioner is going to cost £4/6,000.
In this article, we’ll explore what a Bounce Back Loan is and how to close a company with this outstanding debt correctly.
What is a Bounce Back Loan?
The government introduced the Bounce Back Loan Scheme in March 2020. The aim is to enable small and medium-sized businesses to access finance more quickly during the first wave of the COVID-19 pandemic.
Up until 31st March 2021, businesses could apply to borrow between £2,000 and up to 25% of their turnover (capped at £50,000).
Almost 30 lenders are participating in the scheme, including many of the high street banks. Since it began, over two million businesses have taken advantage of a Bounce Back Loan.
100% guaranteed by the government, there are no fees or interest to pay for the first 12 months. After this, the interest rate is 2.5% per year.
Whilst they were seen as a lifeline for businesses at the beginning of the pandemic, they’ve increasingly become another frustrating monthly outgoing to manage and for businesses that haven’t recovered, it’s another debt to add to the list.
Can I strike my company off with a bounce-back loan?
The short answer is no, you cannot strike a company off that still owes a bounce-back loan. Furthermore, if you try to strike a company off with a bounce-back loan it could get you into serious trouble with the insolvency service. Attempting to strike your company off with a bounce-back loan could lead to you being disqualified from being a director and being made personally liable for some or all of the company’s debts.
To strike a company off the register at Companies House, it must be debt free and meet the following criteria:
- No trading or selling of stocks has been conducted in the last three months
- It hasn’t changed its name in the previous three months
- There are no threats of liquidation and no repayment agreements with any creditors
- Attempting to strike off a company with a Bounce Back Loan
- Any company can be closed, but this must be done legally whilst adhering to all the statutory responsibilities.
Although they don’t require a personal guarantee, a Bounce Back Loan is legally like any other debt. Therefore, if you attempt to strike off a company with a Bounce Back Loan, it’s likely to be objected to by the finance provider to whom the debt is owed. As a result, you’ll receive a letter known as an ‘Objection to Company Strike Off Notice’.
HMRC is keen to keep an eye on directors trying to dissolve companies to avoid paying their tax liabilities, so they collaborate closely with Companies House to prevent this from happening.
Recently, the government has announced new legislation that will allow the insolvency service ‘to target company directors who dissolve their businesses and leave staff or taxpayers out of pocket.’
The new rules are part of the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill. These new rules allow the Insolvency Service to chase directors who have inappropriately struck companies off that have benefited from the Bounce Back Loan Scheme and Coronavirus Business Interruption Loan Scheme.
In the past, some directors have used the strike-off loophole to avoid being investigated by an insolvency practitioner. Striking off a company is cheap, simple to do, and has been misused by many directors over the years to avoid the scrutiny of an insolvency practitioner.
Even if a company has been struck off the register at companies house any creditor could reinstate the company for up to 20 years in the future.
There are many directors who have used this loophole and their company has been dissolved at Companies House but this will not be the end. The bank can’t claim its guarantee from the government unless a company has gone through a formal insolvency procedure. The bank will have to reinstate the company and continue to chase the director for the money, in addition, any other creditors of the company, such as HMRC will also be made aware and in turn, they will restart their recovery and enforcement action.
If you are being advised to strike your company off when the company has taken a bounce-back loan and not paid it back then you need to think about getting a new advisor. This could land you in seriously hot water and be made personally liable for some or all of the companies’ debts.
How to correctly close your company if you have a Bounce Back Loan
If your company can no longer afford to pay its debts on time, including the bounce back loan, voluntary liquidation is the correct legal option to take if you wish to close your company. In this situation, a licensed insolvency practitioner will bring a formal end to the company in a structured and legal manner. They will also inform and deal with all your company’s creditors, including the bounce back loan.
If you’re worried your business doesn’t have the necessary funds to pay for voluntary liquidation, and you’ve been registered on the company payroll for more than two years, you may also be able to apply for a director redundancy claim.
The average claim is £9,000 per director so this gives you more than enough to pay for the cost of liquidation and leaves you with some money in your pocket.
Need more advice?
If you’re considering striking off your company but have a Bounce Back Loan in place, get in touch with me today for a chat on your options.