A guide, not advice. This explains how things generally work. A licensed insolvency practitioner will tell you what applies to your company or to you.
Can I liquidate a company with a Bounce Back Loan?
Yes - a company with an outstanding Bounce Back Loan can be liquidated, and because BBLs were 100% government-guaranteed with no personal guarantee from directors, the unpaid balance ordinarily dies with the company.
In this guide you'll learn how Bounce Back Loans are treated in a liquidation, the specific circumstances in which directors face personal consequences, and how liquidators and the Insolvency Service investigate BBL use.
The distinction that decides everything is how the loan was used - so it's a good idea to gather the records showing where the money went before taking advice.
What happens to a Bounce Back Loan in liquidation?
In a Creditors' Voluntary Liquidation, the lender claims for the unpaid balance as an unsecured creditor and recovers any shortfall from the government guarantee.
Directors gave no personal guarantee on BBLs, so - provided the loan was obtained and used legitimately - there is no personal liability for the unpaid balance, and thousands of companies with BBLs have been liquidated in exactly this ordinary way.
The loan does not prevent, delay, or complicate entering liquidation in itself.
When does a Bounce Back Loan become a personal problem?
Three patterns create personal risk, and every liquidator is required to look for them.
Misstating the application - overstating turnover to borrow more than the rules allowed, or applying when the business wasn't eligible.
Misusing the funds - BBLs had to provide an economic benefit to the business; using the money for genuinely personal purposes (personal purchases, transfers into personal accounts beyond normal remuneration, paying off personally guaranteed debts to shift risk) is where problems arise.
Dissolution dodges - attempting to strike off a company to escape a BBL; the Insolvency Service has powers to investigate directors of dissolved companies precisely because of this pattern.
Consequences in proven cases range from personal repayment claims and director disqualification to, in serious fraud cases, prosecution.
What will the liquidator ask about my BBL?
Expect three questions: what turnover figure supported the application, what the funds were spent on, and whether any of the money went to connected parties.
Directors who used the loan for wages, rent, stock, and keeping the lights on - the ordinary reality for most borrowers - answer these in one meeting with bank statements, and the matter ends there.
Vague answers and missing records extend the process; honest documentation shortens it - which is why gathering the paper trail before your first advice call is worth the hour it takes.
Can I repay some of the BBL and then liquidate?
Take advice before repaying anything - partially repaying the BBL (or any single creditor) shortly before liquidation while other creditors go unpaid can amount to a preference, which a liquidator can unwind.
Counterintuitively, directors sometimes create problems by trying to "do the right thing" by one creditor on the eve of insolvency; the law requires treating creditors even-handedly once insolvency looms, as our personal liability guide explains.
What if the BBL is the only real problem?
Some companies trade adequately but can't service the BBL repayments on top of everything else.
Options short of liquidation include the lender's Pay As You Grow flexibilities (term extensions, interest-only periods, repayment holidays - if not already exhausted) and looking at the whole-picture options for a struggling company.
If the sums simply don't work, an orderly CVL is the responsible route - not a strike-off attempt, and not years of silent arrears.
What should I do next?
Pull together the loan paperwork and the bank statements covering how the funds were used, then take licensed advice on your specific position.
Call our licensed insolvency practitioners in Manchester on 0333 023 5090 - confidential, judgment-free, and direct to an ICAEW-licensed IP who deals with BBL cases every week.
InsolvencySupport.co.uk is operated by Xeinadin Corporate Recovery Limited (company no. 11415156), 100 Barbirolli Square, Manchester M2 3BD. Our insolvency practitioners are licensed and regulated by the ICAEW.
This article is intended for general information purposes only and does not constitute financial, legal, or professional advice. Every case depends on its facts - always take advice from a licensed insolvency practitioner about your specific position.
Reviewed by Alan Fallows, Licensed Insolvency Practitioner, ICAEW.