December 24, 2021
Bounce back loans were a part of the pandemic related reliefs that the UK government had introduced. The loans were offered so that small businesses could access emergency funds faster than the normal routes of borrowing with sums between £2,000 and £50,000. These loans could then be used when paying wages of the staff or other business expenses like rent, heat and light bills or business rates. For the first twelve months the loans were interest free with the government providing a 100% payback guarantee to the lenders involved. However, directors are not personally responsible for paying back these loans as long as it is deemed that the director’s actions were responsible as well as reasonable. This indicates that it is the company that would be liable to make the repayment of the loans and it is in better understanding such fine lines that a tax accountant can prove to be invaluable in.
However, no one had anticipated the duration and the effects of the pandemic, thus, many businesses find themselves in a position where paying back the loan seems an impossible task. If you do happen to still have some of the bounce back amount then set it aside for creditors, the cost of liquidation and pending wages if the worst comes to the worst. By not paying back the loan it is not only that your business’s credit rating will receive a hit, but also the business is as good as insolvent since the liabilities cannot be cleared.
Since the director needs to have acted with responsibility and reasonability a sudden dissolution of the company certainly in this case will not be the solution that is in everyone’s best interest. The Insolvency Service can now investigate such sudden dissolutions and also investigate the director’s involved. If found to be at fault the director might be disqualified from holding this role for a period of fifteen years.
Therefore, the best way out is actually an insolvency process that should sew things in completely considering that only upon liquidation of the firm can the bank get back from the government the monies that were owed from the former. This process can be done through a creditor’s voluntary liquidation or you could have the bank initiate the winding up process, but in either case you should keep someone adept at tax services handy to ensure that you get the best bet.
Also, important to note here is that the preference law is still applicable. Thus, if there are any loans that you are personally liable for as a director, these will need to be paid as they will be viewed to be your own responsibility.