Bounce Back Loans and Coronavirus Business Interruption Loans were introduced by the government in 2020 to help businesses weather the coronavirus storm.
The Bounce Back Loan Scheme (BBLS) was designed for small businesses and enabled them to access loans worth 25% of their turnover, up to a maximum of £50,000, with a 100% government-backed guarantee.
The Coronavirus Business Interruption Loan Scheme (CBILS), on the other hand, was aimed at small to medium enterprises with an annual turnover of up to £45m. The CBILS enabled them to borrow up to £5m, with an 80% government-backed guarantee.
However, despite billions being borrowed by businesses across the UK, what happens if you can’t pay or if you want to close your company down and walk away?
We are asked the question “can I dissolve my company with a Bounce Back Loan?” all the time, so in this blog, we investigate your options...
How does the dissolution process work?Before we answer the question “can I dissolve my company with a Bounce Back Loan?” we first need to look at what company dissolution is.
Dissolution is the process of closing down a company as a legal entity. A company can be dissolved if it hasn’t:
- traded or sold any stock in the last three months;
- changed names in the last three months;
- been threatened with liquidation, and
- if there are no agreements in place to repay creditors (such as a company voluntary arrangement)
So, can I dissolve my company if I have a Bounce Back Loan or Coronavirus Business Interruption Loan?
In a nutshell, you can dissolve a company if you don’t owe anything. Dissolving a company is only the best course of action when the business is no longer serving a purpose; it isn’t recommended for companies that are failing financially.
For this reason, if you try and dissolve a company with an outstanding BBL or CBIL, it will be objected to by MRC. This is known as an ‘Objection to Company Strike Off Notice.’
Even if your application does somehow slip through the net, if a creditor contacts the courts and alerts them to any outstanding payments, they have the power to resurrect the business and restart debt recovery proceedings for a period of up to 20 years.
What’s more, if you are found to have failed to inform your creditors about your application to dissolve a company, you could be banned from being a director in the future or even prosecuted. So, it’s definitely not a risk worth taking!
Dissolution and director redundancy
If that wasn’t enough to put you off attempting to dissolve your business with an outstanding loan, when you dissolve a business, you aren’t eligible to claim director redundancy.
The average claim for a director is around £12,000 – a substantial amount of money if you are going through a tough time financially.
Not only could director redundancy help to pay towards liquidation costs, but it could also help you out financially whilst you decide what to do next.
What are the alternative options to dissolution?
The good news is that there are a number of options available to companies who are struggling to pay their loans or who want to close their business down whilst still having outstanding loans to pay off:
1. Pay back your loans with government support
Pay As You Grow is a scheme introduced for Bounce Back Loan borrowers to help them repay the debt. Under the scheme, borrowers can extend the length of their loan to 10 years, reducing monthly repayments by almost half by spreading them out over a longer period of time.
There is also the option to delay all repayments until 18 months after the loan was taken out, and borrowers can also choose to make interest-only payments for six months, with the option to do so up to three times throughout the duration of the loan.
You can also pause repayments entirely for up to six months too. Find out more about the Pay As You Grow Scheme here.
2. Rescue your business with business turnaround solutions
If your business is struggling financially but you believe it still to be viable, you could turn things around with a business recovery solution.
First up, a company voluntary arrangement (CVA) is a type of structured repayment plan that enables you to renegotiate debt whilst continuing to trade. Once the arrangement is in place, all interest and charges will be stopped, giving you the breathing space you need to solve your financial problems.
You will pay towards your debts for an agreed period of time, at a rate that is affordable to you – and once the time is up, your remaining debts will be written off. Discover more about how the CVA process works here.
Alternatively, a pre-pack administration is a legal insolvency procedure that enables you to restructure a struggling company by packaging and selling it to a new company that is often controlled by the same directors. Discover more about how pre-pack administrations work here.
3. Close your business with a creditors’ voluntary liquidation
Finally, if you still want to close your business down and have a Bounce Back Loan or a Coronavirus Business Interruption Loan, the best way to do so is with a creditors’ voluntary liquidation (CVL).
A creditors’ voluntary liquidation is a quick and powerful way to close a business and deal with things legally and properly. It enables all loose ends to be tied up, and the directors are free to walk away and get on with a new business.
When you enter into a CVL, a licensed insolvency practitioner will sell the business assets, using the fund to repay creditors in the correct legal order before closing the company down. Discover what happens to your Bounce Back Loan if you decide to liquidate your company in this blog.
What to do next if your company is in trouble
We hope we have suitably answered the question “can I dissolve my company with a Bounce Back Loan” in this blog for you!
If you are struggling to pay back government loans or have decided that the best option is to close your company down, McAlister & Co are here to help. Don’t bury your head in the sand – contact us today for free, confidential advice on what to do next.