Overview Of Transfer Of Bounce Back Loans To Other Companies
Can I Transfer A Bounce Back Loan To Another Company? You cannot transfer the Bounce Back Loan to a new company or business.
The Bounce Back Loan support scheme was provided to struggling businesses that were devastated by the Covid-19 Pandemic. However, whilst some businesses were saved and safeguarded many were not and matters were in effect merely delayed as they did not recover from the dramatic downturn.
Businesses that have continued to struggle in some cases wish to start again but there is still the Bounce Back Loan that needs to be addressed.
What Is A Bounce Back Loan?
A Bounce Back Loan was a loan that was offered to struggling businesses by the British Business Bank (“BBB”).
The BBB put in place the Bounce Back Loan Support Scheme that enabled businesses to quickly apply and receive up to £50,000 by way of a loan to help those affected by the Covid-19 Pandemic to cope with their company cashflow problems.
Bounce Back Loans were offered to businesses and guaranteed by the government. As a result, lenders who worked with the BBB to offer these loans had very little or no risk. Borrowers in effect were able to self-certify the loans they applied for based on their 2019 turnover. This meant businesses had ready access to the cash they needed.
Directors of companies that applied for Bounce Back Loans did not need to provide a personal guarantee and therefore their personal finances would usually remain unaffected even if the company subsequently defaulted on the loan.
The Bounce Back Loan scheme suffered from a potential flaw that although business may have temporarily survived, when the requirement to make repayment of the loan commenced some were unable to do so.
Can You Transfer A Bounce Back Loan To Another Company?
It is not permissible to transfer a Bounce Back Loan to another company.
Bounce Back Loans were conditionally supplied to further the economic benefit of the company or business that applied for them only. Only one Bounce Back Loan was permitted for each company.
Directors who transferred Bounce Back Loans to other businesses or even to themselves have often been reported to the Insolvency Service by a Liquidator appointed over the original business and this often has resulted in Director Disqualification Proceedings and in some instances Directors Disqualification Compensation Orders.
The Bounce Back Loan Scheme appears intended to mirror a core Director’s Duty to further the success of the company as required by Section 172 of the Companies Act 2006. That is consistent with the need to use the loan to further the economic benefit of the company that lent the cash in the first place.
The supply of a Bounce Back Loan was never intended to be an investment by the government in a Director who might be able to transfer such funds to one of their other businesses; it was always in effect an investment in the business that applied for the loan.
Cannot Repay A Bounce Back Loan?
If you cannot pay a Bounce Back Loan then given you cannot transfer it to another company one option is to go into Liquidation with the Bounce Back Loan. You can liquidate a company with a Bounce Back Loan.
A Bounce Back Loan was an unusual form of finance provided by the government but the loan is still a form of debt. If a company is unable to pay its debts when they fall due then it is insolvent. If a company is insolvent without a viable future and a means to repay the debt then Creditors Voluntary Liquidation is typically one of the most useful procedures available to enable a Director to undertake an orderly winding up of the company.
Using Creditors Voluntary Liquidation To Wind Up With A Bounce Back Loan
Creditors Voluntary Liquidation is a formal insolvency procedure that enables a company to be wound by an Insolvency Practitioner known as the Liquidator. It is a procedure that is specifically provided for in the Insolvency Act 1986 to enable insolvent companies to have an orderly winding up.
The Liquidator once appointed by the Directors and the creditors can take control of the company’s assets and after the costs and expenses of the Liquidation, distribute any surplus to creditors. Typically the prospect of a distribution to creditors in many companies where they have been struggling with a Bounce Back Loan is unlikely. Once the Liquidation is completed the company can then be dissolved.
The effect of a Creditors Voluntary Liquidation procedure is that unpaid debts after any distributions are made will be in effect written off.
Can You Dissolve A Company With A Bounce Back Loan?
Attempting to dissolve a company with a Bounce Back Loan might be tempting if it is insolvent and without a viable future because it can be viewed as a reasonably cheap and quick procedure. However, generally, it is not a process readily available to a company with debts.
It might be technically possible to dissolve a company with a Bounce Back Loan. However, in most cases, the lender (the Bank or other creditors such as HMRC) will file an objection to striking off a company and halt the process thereby encouraging the Directors to opt for Creditors Voluntary Liquidation or perhaps even Compulsory Liquidation.
Lenders who are making a call under the government guarantee will often wish to do so via showing the government the Bounce Back Loan is irrecoverable. Liquidation is a way to demonstrate this position.
A Director should be very careful about attempting to dissolve a company with a Bounce Back Loan but fulfilling the procedures as they risk committing an offence if they do not do so. Fundamental is that the DS01 form for dissolving the company must be served on all the creditors.
A Director who attempts to strike off a company with a Bounce Back Loan without proper compliance with the legal procedures not only risks going into Compulsory Liquidation after a winding up by the Court but such conduct can also form the basis of Director Disqualification Proceedings. It can be seen as an improper attempt to bypass the debt. It can also lead to Director Disqualification Compensation Orders if following an investigation it is discovered by the Insolvency Service the Bounce Back Loan as incorrectly applied for and or improperly deployed for a Director’s personal benefit and not the economic benefit of the company.
If you are struggling with a Bounce Back Loan we can help you so get in touch.
