Bounce Back Loan Write Off
A bounce back loan write off can only be written off if the business enters an insolvent process, such as liquidation. The debt will only be declared uncollectible by the government or the lender following a formal insolvency procedure. Although it won’t be written off, it might be feasible to work out a longer repayment schedule and a payment holiday with the lender.
Position of the Government Minister on the Write-Off of Bounce Back Loans
On February 16, 2022, John Glen, the Economic Secretary to the Treasury and Minister of State (Treasury) (City), stated:
The government has no policy in place to write off loans in bulk. Under the Bounce Back Loan Scheme (BBLS), lenders or law enforcement may pursue recovery actions against all debts, particularly in cases of major fraud or financial crime.
The British Business Bank oversees the administration of Bounce Back Loans, which are guaranteed by the government. There doesn’t seem to be any chance that a limited corporation will be allowed to write off these loans as long as it is not government policy to do so.
The Bounce Back Loan Scheme’s Objective
To assist companies impacted by the ongoing COVID-19 outbreak, Bounce Back Loans were created.
All businesses were allowed to access loans up to £50,000 under the Bounce Back Loan program. The reason bounce-back loans were appealing was
Directors of the company are not required to offer a personal guarantee.
no loan payments throughout the first 12 months
low rate of interest
But even though the majority of loans were obtained without any indication of the widely reported scam, many businesses are nonetheless having financial problems now that they have to make repayments. Cash flow issues have emerged despite the availability of Bounce Back Loans because some businesses, such as those in the hospitality industry, were negatively impacted for an extended period.
How Can The Bounce Back Loan Be Written Off?
Writing off a bounce-back loan requires a formal insolvency process.
Can the Bounce Back Loan be written off if you are having trouble repaying it? This is a frequently asked question. The response is that a firm must go through a formal insolvency process, such as a Creditors Voluntary Liquidation, before a Bounce Back Loan may be written off.
Even while the loan terms were favorable and there were limitations on how the money might be used, it is still a loan, just like any other. The business is still responsible for paying it back. The government’s guarantee will only be available for the lender to invoke in the case of insolvent liquidation.
What are your choices if you can’t pay back a bounce-back loan?
Pay As You Grow was introduced in case you are unable to repay a Bounce Back Loan.
The government implemented the Pay As You Grow (“PAYG”) program to address the issue after realizing that many businesses would have trouble repaying their Bounce Back Loans.
On June 21, 2021, John Glen, the relevant government minister, stated:
The government has already taken steps to provide companies with the room and flexibility they require to pay back their loans. Under the Bounce Back loan program, the government pays the first 12 months of interest that the lender charges the firm, and the borrower is not required to repay the loan for the first 12 months. “Pay as You Grow” (PAYG) alternatives were introduced by the government to help firms with their repayments.
The PAYG plan was designed to assist businesses by:
Request a ten-year loan extension at the same fixed interest rate of 2.5 percent instead of the original six-year term. They can also choose to pay interest only for six months, reducing their monthly installments; however, this option is only available three times during the Bounce Back Loan’s term.
Take a six-month pay holiday; this option is available just once throughout the Bounce Back Loan.
Repayment of the Bounce Back Loan was unaffected by any of these choices. Businesses are still accountable for them even if they use PAYG.
Can’t Pay Off Your Bounce Back Loan?
Consider liquidation if your business is insolvent and cannot pay its debts when they become due or if its total assets are less than its total liabilities.
Director responsibilities require that the interests of creditors be considered when a company is insolvent. The Companies Act of 2006 states in Section 172(3):
This section’s obligation is subject to any laws or regulations that mandate directors to act or consider the company’s creditors’ interests under specific conditions.
The Creditor Duty, which takes effect when a business becomes insolvent, is significant because it supersedes the interests of the shareholders. This implies that a director is no longer free to manage the business with the interests of shareholders as their top priority. The rationale is that creditors will receive full payment when a business is solvent, but there is a genuine chance they won’t when it is insolvent.
The interest of creditors will become the primary factor that a director must consider the more insolvent a company is. Therefore, the directors must act to guarantee that creditors are paid properly and are not disadvantaged if the situation is so dire that liquidation is unavoidable.
A statutory order of payment in insolvency proceedings dictates how the money must be used in liquidation after the assets have been realized. Before making payments to creditors, the proceeds from the sale will be utilized to cover the charges and liabilities of the liquidation. The caveat to that rule is that if a creditor has a fixed charge and is a secured creditor, they usually have the right to the money recovered from fixed charge assets before many of the liquidation’s regular costs. Further pursuit of unpaid debts would only be feasible if a Director had given a personal guarantee. However, lenders could rely on the government guarantee to make up whatever difference they experienced.
However, the British Business Bank that established the Bounce Back Loan Scheme said that lenders were not allowed to require personal guarantees to provide the loans. The Coronavirus Business Interruption Loan plan (“CBILS”) was the other significant COVID-19 financing that was readily available, and under that plan, a lender could only require a personal guarantee from a corporate director for loans exceeding £250,000.
What Is A Company’s Dissolution?
A limited company’s existence is terminated through the process of dissolution. The firm vanishes from existence as soon as it is no longer listed with Companies House. Form DS01 must be completed to dissolve a business, however, this cannot happen unless creditors are informed and given a chance to protest.
If you notify a lender that you want to dissolve the business and you have an outstanding Bounce Back Loan, they are likely to oppose. Therefore, it is not a suitable method of ending your limited company.
In essence, this situation remains the same if your business has unpaid HMRC tax bills. HMRC would probably protest if you attempted to dissolve the business, and even if they were not involved, they might eventually revive the business and place it under compulsory liquidation.
Therefore, if you are having problems making payments on a Bounce Back Loan, it is not a good idea to dissolve the firm. The business must go through a liquidation process to be managed by a liquidator.
