We are going to look at the most frequently asked questions by limited company directors about the bounce back loan. It was quite easy to get these loans as there was not a great deal of checking involved and as a result of this there may have been some less than totally honest applications. There are 5 questions which are always being asked and here we will try and give reasonable answers to these questions. The 5 FAQS for limited companies that took out the bounce back loan are:
1. CAN DIRECTORS/SHAREHOLDERS BE PERSONALLY LIABLE FOR THE LOAN?
The simple answer is no provided that the loan was taken in accordance with the terms and conditions of the loan and it has been used to generate economic activity. However, there are a couple of exceptions when you could be held personally liable.
i. A Director or shareholder immediately took out the loan and used it to buy a car or a buy to let property etc….. If the company then went into liquidation there would be a creditor outstanding on the balance sheet and a corresponding debtor. If the authorities work it out and the audit trail would be there, then they would enforce the debt. You breached the conditions of the loan and you owe the company that money. There could be more serious consequences as well if the loan T&C’s were criminally breached.
ii. You could also be personally liable if you lied on the form or took out multiple loans or seriously breached the T&C’s. We then start getting into fraud and the consequences could be severe. Again, if they work it out they are going to come after you for the repayment of the debt. Could result in criminal bankruptcy which has serious repercussions.
2. WHAT HAPPENS IF THE COMPANY GENUINELY CANNOT AFFORD TO REPAY THE LOAN?
You have no personal liability if all the rules have been followed and the business is genuinely struggling. We recommend that you:
i. Do not sit on it and do nothing. Make sure you start some planning.
ii. Talk to the lender and extend the loan to 10 years or interest only.
iii. Try to talk to creditors and get professional advice.
iv. Talk to a licensed insolvency practitioner. They can discuss your options such as restructuring and creditor negotiations. It may save the business.
v. Remember the assets of the company are not safe when the company goes into liquidation. They form part of creditor settlements.
3. WHAT HAPPENS TO THE LOAN IF THE COMPANY IS CLOSED DOWN?
You cannot close the business by filling out a DS01 form and applying for the company to be struck off. You would be prevented from doing so because you have an outstanding loan. The only route for closing the business would be through insolvency and liquidation. In that scenario the company would have to be insolvent and unable to carry on trading.
4. IF THE COMPANY FAILS TO PAY BACK THE LOAN OR MAKE REGULAR PAYMENTS?
Basically, you have to pay it back. The loan is not a gift. For companies that are trading in profit and can afford repayments they will be expected to make regular payments. There will be consequences for non-payment such as debt collection or county court judgements.
5. IF A DIRECTOR OR SHAREHOLDER SPENT THE MONEY ON PERSONAL PURCHASES?
Firstly, you breached the conditions of the loan. As mentioned in 1 above they will come after you for the money in the event of non-payment and they find out that you breached loan conditions. A condition of the loan is that it is used for economic activity and personal spending is not in that category. There were 1 million of these bounce back loans issued at an average of £30K per loan and little due diligence was conducted by the banks so provided you repay the loan it is very unlikely that any action will be taken against you.