What to do if Your Company is in Bounce Back Loan Arrears

July 29, 2022 / Bounce Back Loans

As a means to help companies through the worst of the Coronavirus pandemic, the government implemented the Bounce Back Loan Scheme (BBLS). This scheme offered companies a financial safety net, providing those small businesses that were hit the hardest a chance at making it through to the other side.

Although this scheme was enough to help some companies emerge from the lockdowns intact, others simply could not continue even with the assistance. For them, the decline in business was so great that business as usual was not an option. Unsurprisingly, these companies make up the bulk of those that fell into arrears with their Bounce Back Loans.

According to data from the British Business Bank, companies in such a situation number 193,000 as of June 2022. This amounts to almost 1 in 8 companies that took out a Bounce Back Loan. If your company is in this situation, it is vital you know how to move forward.

In this article, Clarke Bell will discuss the Bounce Back Loan Scheme, what arrears mean for your company, and your available options.

What is the Bounce Back Loan Scheme?

The Bounce Back Loan Scheme was implemented to ease the financial pressure felt by companies. It allowed companies to claim 25% of their annual turnover, up to a maximum figure of £50,000. This loan was guaranteed by the government, not requiring any security from the company directors. This meant that Bounce Back Loans could be obtained without personal guarantees, collateral, or other forms of security. In the case of default, the government would step in to reimburse the lender for any funds that went unpaid.

One significant oversight of this scheme was time. Both lenders and borrowers did not expect the effects of the pandemic to be felt for so long. Many people across all sectors and industries expected mere months of disruption, rather than came to pass. As such, some borrowers made overly optimistic turnover estimates, while some lenders approved loans that were clearly quite risky. This led to some companies taking out loans they could not repay in the future.

What Bounce Back Loan arrears mean for your company

Falling into arrears for your Bounce Back Loan doesn’t necessarily mean trouble on the horizon. If this has happened to your company, you should make every effort to catch up with your repayments, which can be made easier by negotiating with your creditor. However, companies that fall into arrears don’t tend to do so by accident. If your company cannot make its Bounce Back Loan repayments, the situation could get much worse.

As part of the Bounce Back Loan guarantee, lenders are obligated to do everything within their power to recover their money. The government will refuse to reimburse them for any financial losses if they don’t. Due to this, lenders are essentially compelled to report borrowers that cannot pay to credit agencies. Naturally, this doesn’t do the borrower’s credit rating any favours, but can lead to worse consequences down the line.

If your company is reported as being unable to repay its Bounce Back Loan, it could lead to an investigation and even compulsory liquidation. Creditors can serve a winding-up petition to companies struggling to repay, which will lead to a court visit. If found to be insolvent, the liquidation procedure will begin.

Compulsory liquidations are not a great experience for companies or directors. They put an abrupt end to a company, which is stressful enough for any director. In addition, the Insolvency Service will open an investigation into the conduct of directors. Searching for evidence that they had a hand to play in the company’s failure. If any misconduct is found, it can lead to significant penalties being levied against the directors responsible.

The disqualification of the directors’ license is common, lasting up to 15 years. This disqualification also precludes directors from other management positions in other companies. Fines can also be applied, and directors can even be held personally liable for the Bounce Back Loan. In some extreme cases, a prison sentence can also be applied. Given the level of intrusion and potential for catastrophic consequences, it is highly advisable for directors to take action first, rather than await the first move to be made by creditors.

Your options for dealing with Bounce Back Loan arrears

If your company is in Bounce Back Loan arrears, it is best to make the first move. For insolvent companies that aren’t likely to remedy their financial situations, it can be best to close. The best method of doing so is through the Creditors’ Voluntary Liquidation (CVL) procedure. This procedure allows directors to enlist the aid of a licensed insolvency practitioner, who will be responsible for carrying out the process.

Additionally, it affords both companies and directors certain protections; creditors cannot take legal action against a company during this process, and directors’ personal finances will be kept safe and untouched. This is true even if the liquidation cannot raise enough capital to repay every debt. These protections, coupled with professional help, make the CVL procedure the ideal solution for companies struggling to pay their Bounce Back Loans, and insolvent companies at large.

Another popular method of closing a company is dissolution, often termed the strike-off process. While this is an effective method of closing a company, and often an incredibly cheap one, it cannot be used if a company has an outstanding Bounce Back Loan. Company dissolutions must be announced in the Gazette, which creditors often check. These creditors can then make a formal objection to the dissolution, stopping the process from continuing. In some cases, creditors can even petition the courts to reinstate your company. Giving them the opportunity to force it into compulsory liquidation to recover their money. Neither situation is ideal for you or your company, making dissolutions a poor move in this case.

Clarke Bell can help

If your company is struggling to repay its Bounce Back Loan, or is having any wider financial trouble, let Clarke Bell help. We have gained over 28 years of experience in helping struggling companies find a solution, and we can do the same for you. Whether your company would benefit most from a CVL, reorganisation, or another option, our specialists are on hand to assist you. For a free, no-obligation consultation, contact us today and find out how we can help you.