Closing your company with a bounce back loan

If you’ve found yourself here reading this blog then it’s quite likely that you’re worrying about your company’s finances. Many businesses are currently searching for information on closing a company with a bounce back loan.

The first piece of advice that we give to anyone worrying about money is to get help early in the process. The earlier you seek help, the sooner you can get through this stressful time and stop worrying.

We work with many business owners who are currently worrying about company finances and bounce back loans specifically. When business owners took out their bounce back loans there was huge uncertainty over how they would recover from the pandemic financially.

Bounce back loans came at an incredibly unprecedented time for everyone and they did offer a huge support system for businesses who were being forced to close across the country to slow the spread of the virus.

If you’ve taken out a bounce back loan and now need to close your company, there are some steps that you must take to ensure that it is completed properly.

The steps that you are required to take depend on your circumstances. If you are in a position to pay off your company debts and repay the bounce back loan in full then you can enter a member’s voluntary liquidation or strike off the company after you’ve paid off the debts.

We recognise that most business owners are not in this position and are really struggling financially. If this sounds like you, don’t panic, you have options available.

Close a company with a bounce back loan

Is my business insolvent?

If your business has become ‘insolvent’ (you are unable to pay your debts when they are due and/or your liabilities are more than your assets) and you believe there is no hope of recovering financially, you should seek insolvency advice.

When you have reached this conclusion, you should place the company into ‘voluntary liquidation’. This enables you to close your company with a bounce back loan. Essentially, after you have completed the relevant steps, you can accept that this is the end of the business and all unsecured debts will be written off, including your bounce back loan.

Here are the important steps that you must follow to successfully close a company with a bounce back loan:

  • Find a trusted and knowledgeable insolvency practitioner
  • Make sure you have reviewed any potential pitfalls or problems for you personally if you place the company into liquidation
  • Check whether you are entitled to a director redundancy claim
  • Have your practitioner collect the relevant information
  • Sign off your liquidation documents
  • Attend (or be present at if done over the phone) a creditor’s meeting (this is where you will formally appoint your insolvency practitioner)

After these steps have been completed, the company will be in liquidation.

Before you file for any liquidation, there are a few things you need to look into to ensure that everything runs smoothly. Here’s what you need to consider:

  • Ensure you have all the liquidator fees in writing
  • Consider whether you have an overdrawn director’s loan account, if you have, have you discussed this with your insolvency
  • practitioner and agreed on how you are going to repay it, are you able to come to a settlement?
  • Have you made  any preference payments?
  • Have you applied for the loan correctly?
  • Have you spent the loan for the purpose it was meant for?
  • Have any assets been sold undervalue?

Without considering all of these things, some directors end up struggling and having to pay out large amounts of money to rectify the situation.

There are still steps to take before your company can be liquidated. One key step is to find a trusted insolvency advisor. At 1st Business Rescue, we offer free, confidential calls and meetings for those in need of support and advice.

Can't afford to liquidate

Overdrawn Directors Loans

If your company has become insolvent after you’ve taken out a bounce back loan and you have a director’s loan account, you may be wondering what you need to do to ensure that everything goes according to plan. Having an overdrawn director loan account is very common with directors but can become a problem once a company is placed into liquidation.

When you are using company money to pay yourself, you should ensure transparency in every payment. Ideally if your business becomes insolvent you should stop taking dividends straight away and take advice. You can’t pay a dividend from a company that is not in profit and if you do and then place the company into liquidation, the insolvency practitioner will be chasing you personal for the money that you took out.

An overdrawn director’s loan account is an asset of the company and it is the insolvency practitioners job to recover that money from you so it can distributed to the creditors of the company. You could also be accused of trading while insolvent and if the reason that the company has gone bust is down to you taking too much money then you can expect the insolvency practitioner to want some of it back.

Our advice in this situation would be to take time to go through each transaction yourself in detail so that you can work out if you do have an overdrawn director’s loan and what figure that you might owe. This can give you time to prepare and decide what your plan of action may be. There can be various outcomes depending on the situation you are in. If you are struggling to understand your position when it comes to your directors loan please contact us for some free advice.

We understand when it comes to financial stress that directors often want the situation to be dealt with as soon as possible however sometimes it is a good idea to take a step back and assess the situation that you’re in.

Bounce back loan fraud

1.5 Million bounce back loans were applied for by businesses in the UK, the total amount of money that was lent was in excess of £46 billion. Out of this £46 billion it’s been estimated that up to 60% will never be paid back and that many thousands of loans were applied for fraudulently.

Directors who have applied for a bounce back loan fraudulently or misused the bounce back loan are going to find themselves with serious consequences.  The application for the loan was self-certified with very few questions. There are many directors who used this easy application process for their own personal gain.

Although it’s not absolutely clear what the end result will be for these directors, we are sure that the likely outcomes will range from director disqualification, financial penalties, personal liability for all or some of the bounce back loan, confiscation orders and in some cases prison.

Many directors applied for more than their company was entitled to by inflating the turnover of the business to gain a larger bounce back loan. It’s important that you could only project your turnover if your business was incorporated after 1st January 2019. If your company was formed before that date you had to apply for up to 25% of the businesses turnover in 2019, capped at £50,000 and no more. Your turnover was the amount of total revenue that went through your business account in the year 2019. If you are a director who applied for more than this figure you could be accused of bounce back loan fraud and you should seek advice as soon as you can.

Banks are now starting to check application that were made and if they have suspected turnover was increased of that a fraudulent application was made, they are demanding the money back to them.

A key takeaway is that even if you’re worrying about closing your company with a bounce back loan, there are plenty of options for getting through this time. If you have been honest and responsible, closing your company due to debts can be done regardless of the financial situation you are in.

If you have not been responsible with your loan and are worrying about how to deal with the situation, don’t panic and get advice early. Do not continue trading if you know you cannot afford to pay back money that you owe to any creditors. This is very important as it could leave you having to pay even more money back in the long term.

We know that this can be an incredibly stressful time whether you can afford to pay your debts back or not. Attempting to liquidate a business can be very tough. If you need any further advice on anything that we have mentioned, please do not hesitate to contact us. We are more than happy to offer our help and support.

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