This is the ONLY way you can close a company that has take a Bounce Back Loan…
So, the bounce back loan repayments are in full swing, and for many businesses that won’t be an issue. But, some businesses have not bounced back and are therefore really struggling to keep the business running and pay back what they borrowed. If you’ve taken a bounce back loan, there is only one way that you can close your company and we can tell you all about it.
Bounce back loans were introduced for businesses who were likely to experience a loss of earning due to the Coronavirus pandemic. Most companies were eligible for the loan but you had to meet specific criteria to apply. You were then required to provide your turnover from 2019, unless your business was incorporated after a specific date, in which case, you were asked to provide an estimated turnover.
As a business owner, it is not uncommon to be struggling to pay the bounce back loan. What matters most is the way that you deal with it and considering you have landed on this page, it seems like you might want to take the most appropriate and safest option for you and your business.
The only way to close a company that has taken a bounce back loan is through a liquidation.
There are two types of liquidation that you can consider, depending on the financial situation of your business.
A voluntary liquidation involves you appointing a licensed insolvency practitioner, who will officially close your company down. Providing that you have acted within your directors responsibilities and you have not committed any wrongdoings, your bounce back loan will be written off and the government will pay the money back to the bank that you originally borrowed from.
As a director, you have much more control over the liquidation process in a voluntary method. It also falls within your directors responsibilities as you have decided to liquidate rather than it being forced upon you.
A compulsory liquidation usually begins with enforcements from the bank or another creditor. These enforcements can include letters, phone calls and even bailiffs at the door. If, after a specified amount of time, none of these methods are successful, they will issue your company with a winding up petition which will mean you have to attend court. A winding up petition will essentially force you into a compulsory liquidation.
The reason why you can only use these methods of company closure with a bounce back loan is because the banks are unable to claim their government guarantee unless the company goes into an insolvency procedure.
Striking off a limited company with a bounce back loan
When business owners are contemplating company closure, they often look for the easiest and cheapest way out. But it is worth bearing in mind that just because it’s a cheaper option now, does not mean that you won’t end up paying more in the long run.
You’re probably thinking ‘what do you mean, my company will be closed so how can I pay more?’ Well, many business owners use the method of striking off or dissolving their company. But, this is only an option for those with no company debts and definitely no outstanding bounce back loans.
If you’ve already closed your company with a bounce back loan through the method of striking off then you’ve likely slipped through the net.
But, the bank has every right to reinstate your company, which they have to, so that they can claim their guarantee from the government.
Our most important piece of advice on this topic is – do not attempt to close your business through a dissolution because it will end up causing you many more problems in the long run. All you are doing is dragging out the inevitable outcome of having to pay back the money.
Appointing an insolvency practitioner in liquidation
If you have a bounce back loan and you have now decided to close your company, the only real option that you have is to use a liquidation method. You will need to appoint an insolvency practitioner who will formally close the company down and also take care of any creditors you may have.
Before choosing an insolvency practitioner, be sure to gather a few opinions and prices, so that you can assess the situation with little pressure. Make sure that the costs include any overdrawn directors loans that you may have accumulated. These can be a nasty surprise if they are not considered in the first instance.
Be aware that liquidation pricing can vary massively, but for a small company with minimal creditors, you’re looking at around £4800 (+ VAT).
How do I pay for a liquidation?
If you can’t afford to liquidate your company, you could consider claiming redundancy pay. If you’ve been on the payroll of your company for over two years then you should be eligible for director redundancy pay. The average pay out for a director in the UK is £9000, which should take the pressure off your liquidation costs.
The amount of redundancy pay that you are entitled to depends on a range of factors such as age and length of service. In this situation when you are already struggling to make ends meet, any amount of money you are eligible for through redundancy can help.