Can You Dissolve a Company With an Outstanding Bounce Back Loan?

April 5, 2022 / Bounce Back Loans

Closing a company can be a fairly complicated endeavour at the best of times. There are many rules to follow and obligations to meet, with more being added into the mix depending on circumstance. One such addition that can change the process is a Bounce Back Loan.

The Bounce Back Loan scheme was implemented to support companies through the pandemic. Though it was certainly beneficial to some, Bounce Back Loans were not able to save every business. The decision to file for insolvency was made by many company directors, with more considering the option now that Bounce Back Loans are due for repayment. With companies considering insolvency in their future, it’s vital to know whether a company with a Bounce Back Loan can be dissolved.

In short, it is unlikely. While some companies with a Bounce Back Loan could dissolve, the most likely scenario is that it would be blocked. As the debt is an unsecured loan, the dissolution process is likely to receive objections. For companies in this scenario, a Creditors’ Voluntary Liquidation (CVL) is the more appropriate method of closing.

Bounce Back Loans explained

As we have mentioned, The Bounce Back Loan Scheme was introduced by the government to help small to medium businesses that were struggling during the coronavirus pandemic.

The scheme was initially introduced to help those businesses that were excluded from the  Coronavirus Business Interruption Scheme. It was designed to offer a quick cash injection to businesses and to help keep them afloat.

How do Bounce Back Loans work?

The loans are interest free for the first 18 months. After 18 months there is an interest rate of 2.5% per year. Repayments can be made over 10 years or less depending on what you decide is best for you.

In early 2021, some key changes were introduced when the government rolled out its Pay as You Grow Scheme. This means that loan repayments were made to be more flexible over fears that businesses would struggle to pay back money they owed as the first repayments were due from May 2021.

Now, companies can:

  • Delay loan repayments by a further 6 months
  • Extend the length of the loan from 6 years to 10 years at the same interest rates
  • Make interest-only payments for 6 months.

Although more flexible repayment methods have now been introduced, many businesses are still struggling and are now considering closing down. If this is the case for you, you will need to know what your options are.

When can a limited company be dissolved?

Dissolution, also known as a company strike off, is the process of removing your company from the Companies’ House register. In doing so, your company will be wound up and cease to exist. However, in order for you to be eligible for a strike off, your company must have no debts. This includes a Bounce Back Loan. Other criteria you must meet are:

  • Your company must not have traded, sold any assets, or changed its name in the past three months.
  • Your company must not be currently in liquidation.
  • Your company must not have any agreements with outstanding creditors. This includes a Company Voluntary Arrangement (CVA).

How to close a company with an outstanding Bounce Back Loan

Although you cannot dissolve a company with an outstanding Bounce Back Loan, there are other ways to close your company.

After all, an outstanding Bounce Back Loan is classified as a debt like any other. This means it is possible to close the company in the right way.

To close an insolvent limited company with an outstanding Bounce Back Loan, a Creditors’ Voluntary Liquidation (CVL) is normally the best option.

Closing a company with an outstanding Bounce Back Loan using a CVL

A Creditors’ Voluntary Liquidation is a formal insolvency process that liquidates an insolvent company. Meaning it ceases to trade and operate. Once the company’s assets and liabilities have been dealt with, the company can then be formally dissolved and struck off the Companies House Registrar.

As a formal insolvency process, a licensed Insolvency Practitioner is legally required to carry out the process. It is a completely voluntary process that is applied for by the company directors and shareholders at a time that is right for them.

Although the process is initiated by the company directors, for a CVL to be carried out, at least 75% of shareholders must agree.

A CVL is a good option for companies that are insolvent and don’t have the funds to repay their debts, but wish to avoid being forced into compulsory liquidation. (Here, a company is forced to liquidate by creditors who issue a winding-up petition to the court when they are owed £750 or more and have had payment demands gone unfulfilled.)

You should consider a Creditors’ Voluntary Liquidation if:

  • The company has run out of cash and can no longer pay its bills or debts
  • The company is no longer viable
  • Creditors are threatening you with a winding-up petition to retrieve money owed to them
  • You are worried that you will build up more debts

If this is the case, a CVL will allow you to close the company quickly and professionally. This will leave more options open to you in the future, such as opening another company.

Closing a company with an outstanding Bounce Back Loan with the help of Clarke Bell

If your company has taken on an outstanding Bounce Back Loan but is still unsustainable and is struggling to meet its debt obligations, it’s best to act quickly to ensure the situation does not get any worse.

The good news is that an outstanding Bounce Back Loan can be treated as any other debt. This means a company with an outstanding Bounce Back Loan can be liquidated through Creditors’ Voluntary Liquidation.

It is worth remembering that you cannot simply dissolve a company with an outstanding Bounce Back Loan. Your liabilities and assets must first be dealt with through liquidation.

Now you know the best route forward, get in touch with Clarke Bell to see how we can help.

We have a friendly team of experienced licensed Insolvency Practitioners. We will work with you closely to get you on the right path. With over 28 years’ experience, you can rest assured that we will find the best solution for you going forward.

Get in touch and see how we can help you today.