Considering Closing a Limited Company with Bounce Back Loan?

It’s not surprising, given the current economic climate, that many business owners are considering the question of closing a limited company with bounce back loan. The government lent £46.6bn in bounce back loans during Covid-19 through 25 accredited lenders to firms that fit certain requirements. Many limited companies will now find themselves unable to repay bounce back loans and want to know if they can apply for dissolution or strike off with bounce back loan still outstanding. This article mentions the company strike off application and asks the question, “Can I strike off with a bounce back loan?”

At a time when many businesses were struggling, the bounce back loan scheme provided much-needed financial support. With so much uncertainty about whether businesses would have to close and how this would impact their employees and customers, as well as essential supplies, the bounce back loan helped to ease some of the worry and provide stability which was backed by government guarantee.

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The criteria for application of a bounce back loan was:

• They could provide evidence for the business having been negatively impacted by the Coronavirus pandemic. 
• The application was to borrow between £2,000 and £50,000.
• The directors can prove that the business was not already suffering from financial difficulty in December 2019. 
• The UK business was still trading in March 2020. 

The bounce back loan program avoided a Personal Guarantee, which would have been welcome news to many company directors and owners.

Is closing a limited company with bounce back loan an option? 

Unfortunately not. If you have an unpaid Bounce Back Loan, you cannot dissolve the company. The Government introduced legislation in December 2021 with retrospective effect which extends director disqualification powers to dissolved companies (previously the company had to be still “live”). There are now block objections to striking off at Companies House for any company with an outstanding bounce back loan.

It is a criminal offence to apply for strike off if the company has unpaid debts. Now you might be wondering what your other options are… What’s the difference between dissolving a company and liquidating it?

The fact is that they are quite different, and the one you’re allowed to utilise depends in large part on your company’s present situation. One of the most significant distinctions is the cost of each, with one costing merely £10 and the other costing at least £3,500.

If you didn’t take out the bounce back loan, you might have been advised to apply for dissolution for £10 before the pandemic. After submitting your application, you will be asked to send a letter to your creditors informing them of your financial status. They may determine that striking off is the best option for your company at this point because they will not receive any money owed if the business is struck off. Your company would be deleted from the register and cease to exist.

What’s the Correct Way to Close a Limited Company with a Bounce Back Loan?

Should you need to dissolve a company after having taken a Bounce Back Loan, its possible to eliminate the existing debt and subsequently terminate the limited company through liquidation.

Through a Creditors Voluntary Liquidation (CVL), a licensed insolvency practitioner manages the company’s creditors, liquidates any assets to cover debts, costs and expenses and finally arranges for the company to be struck off.

If you are worried about a lack of funds, you might be eligible to apply for director redundancy payments, offered by HMRC, provided you’ve been operational for at least 2 years. You can explore our comprehensive article on director redundancy to determine your eligibility here.

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Can HMRC Reinstate a Dissolved Company?

Yes, if a company has been erroneously struck off, HMRC has the authority to reinstate it at any time in the future.

For directors who might consider a strike off as an quick route to company closure, a perpetual state of uncertainty looms unless the company’s debts are addressed prior to dissolution. This is supported by Section 1003 (6) of the Companies Act, which explicitly states that, irrespective of a company being struck off, “The liability (if any) of every director, managing officer and member of the company continues and may be enforced as if the company had not been dissolved.”

New Laws around striking off a company

The government announced new legislation that was passed in December 2021. The ‘Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill,’ which is a new law that prohibits businesses from closing down their firm while still having an outstanding bounce back loan.

If you choose this approach of shutting down your limited company, you must accept the consequences. According to the bill, company directors who took this option may be required to pay compensation to creditors they owed money to. This implies that if you took bounce back loans and never paid any of it back to the bank, you will be responsible for repaying at least some portion of it. You will be personally liable for the outstanding debt.

After you have struck the company off, it could be reinstated within 20 years. This means that you will become responsible for any outstanding debts and may find yourself disqualified from being a director in the future.

When you submit a company dissolution application, your attempt will be advertised in the London Gazette. Your creditors will have three months to raise an objection to the closure, and it’s very probable that they’ll do so.

If you’re thinking about shutting down your company with a bounce back loan, your only real option is to go through the liquidation process for your limited company. This can be done either voluntarily or compulsorily, depending on how your business is doing. Do not try to strike off if the company has taken a bounce back loan–you’ll end up in a worse financial state than before having to pay back all unsecured debts.

If you’re concerned about liquidation and company closure, or even liquidation pricing, you should seek insolvency advice as soon as possible. We can assist you in obtaining the most beneficial outcome for your firm. Remember in order to proceed with an insolvency solution such as a Creditors Voluntary Liquidation you must proceed through a licensed insolvency practitioner. Usually these are licensed through firms such as the Insolvency Practitioners Association. You can see any updates on your company file using Companies House on the Companies House Register.

For free confidential advice speak to us at Company Doctor on 0800 169 1536 or leave an enquiry on our website. We offer professional advice on many types of insolvency service.

Companies House have an article on closing down a company HERE

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References

The primary sources for this article are listed below.

Companies House – Applying for Strike Off – GOV.UK (gov.uk)

Strike off, dissolution and restoration – GOV.UK (www.gov.uk)

Details of our standards for producing accurate, unbiased content can be found in our editorial policy here.