Can You Write Off A Bounce Back Loan?

This guide is for anyone with a company who wants to know if you can write off a Bounce Back Loan.

In this article you’ll learn about:

  • What to do when you cannot repay a Bounce Back Loan.
  • Whether the Bounce Back Loan can be written off?
  • Insolvency and a Bounce Back Loan.
  • Dissolving a company with a Bounce Back Loan.

Let’s get cracking.

Write Off A Bounce Back Loan

Can My Company Write Off Its Bounce Back Loan?

A company cannot write off a Bounce Back Loan.

It might be possible to negotiate with the lender to repay a Bounce Back Loan over a longer period and take a payment holiday but it will not be written off. The only way to write off a Bounce Back Loan is for the company to go into insolvent Liquidation. Only with a formal insolvency process will the debt be deemed uncollectable by either the lender or the government.

Government Minister’s Bounce Back Loan Write Off Position

John Glen who is the Minister of State (Treasury) (City), The Economic Secretary to the Treasury said on 16 February 2022 said:

There is no government policy to wholesale write off loans. Under the Bounce Back Loan Scheme (BBLS) all loans are liable to recovery action by lenders or – in the case of serious fraud or financial crime – law enforcement.

Bounce Back Loans are guaranteed by the government and administered by the British Business Bank. So long as it is not government policy to write these loans off there appears no prospect of a limited company being able to do so.

What To Do When You Cannot Repay Your Bounce Back Loan

Bounce Back Loans were introduced to help businesses affected by the continuing Covid-19 pandemic.

Loans of up to £50,0000 were made available to all companies through the Bounce Back Loan scheme. Bounce Back Loans were attractive because:

  • no requirement for company Directors to provide a personal guarantee came
  • no repayment of the loan within the first 12 months
  • low interest rate
can't pay bounce back loan
However, despite most loans being taken out without any of the suggestions of the fraud that has been well publicised many businesses are still facing financial difficulties now that repayments have to be made. Certain businesses such as those in the hospitality sector were hit for a long period of time meaning that notwithstanding the provision of the Bounce Back Loans, cash flow problems have arisen as a result.

Can The Bounce Back Loan Be Written Off?

A common question that people want to know the answer to is can the Bounce Back Loan be written off if you are struggling to repay it. The answer is that the writing off of a Bounce Back Loan will only take place if a company enters a formal insolvency procedure like a Creditors Voluntary Liquidation.

Can You Write Off A Bounce Back Loan you cannot pay?
Whilst the terms of the loans were favourable and there were restrictions on the use to which the loan ought to be put, nevertheless, it is a loan much like another one. The company remains liable to repay it. Only in the event of insolvent Liquidation will the government’s guarantee be capable of being called upon by the lender.

What Can You Do If You Can’t Repay A Bounce Back Loan?

The government recognised many companies will be facing difficulty in paying back their Bounce Back Loans and therefore introduced a Pay As You Grow (“PAYG”) scheme to try and address the problem.

John Glen, the relevant government Minister said on 21 June 2021:

The Government has already taken action to give businesses the flexibility and space they need to repay their loans. Under the Bounce Back loan scheme no repayments are due from the borrower for the first 12 months of the loan, and the Government covers the first 12 months of interest payments charged to the business by the lender. In order to give businesses further support in making their repayments, the Government announced “Pay as You Grow” (PAYG) options.

pay bounce back loan as you grow or Can You Write Off A Bounce Back Loan?

To help businesses the PAYG scheme meant that:

  • request an extension of their loan term to 10 years from six years, at the same fixed interest rate of 2.5%
  • reduce their monthly repayments for six months by paying interest only with this option available only up to 3 times during the term of the Bounce Back Loan
  • take a repayment holiday for up to 6 months with this option available only once during the term of the Bounce Back Loan.

None of these options stopped the Bounce Back Loan from being repayable. Companies even with PAYG are still liable for them.

Insolvent With A Bounce Back Loan

If your company is insolvent and therefore unable to pay its debts when they fall due or the assets are overall exceeded by the liabilities then Liquidation may be an option to consider.

When a company is insolvent Director duties mean that the interests of creditors have to be taken into account. Section 172(3) of the Companies Act 2006 says:

The duty imposed by this section has effect subject to any enactment or rule of law requiring directors, in certain circumstances, to consider or act in the interests of creditors of the company.

does insolvency mean you Can You Write Off A Bounce Back Loan?

When a company is insolvent the creditors’ interest is important and outweighs the interests of the shareholders. That means that a Director no longer has the freedom to run the company in the interests of shareholders first and foremost. The reason is that when a company is solvent creditors will be paid in full but when a company is insolvent there is a real risk they will not.

The more insolvent a company is the more the creditors’ interest will take over as the key consideration that a Director needs to take into account. Therefore if the position is so serious that Liquidation is inevitable then the Directors need to act in a way that ensures creditors are not disadvantaged and that they are treated fairly.

In Liquidation, once the assets have been realised there is a statutory order of payment in insolvency proceedings that determines how the funds need to be applied. Monies realised will be used to pay the costs and expenses of the Liquidation before payments are made to creditors. The exception to that position is if the creditor is a secured creditor with a fixed charge they will typically be entitled to the funds recovered from fixed charge assets before many of the routine expenses of the Liquidation. Only if a Director has provided a personal guarantee would it be possible for unpaid debts to be pursued further. Lenders however would be able to call upon the government guarantee to cover any shortfall that they suffered.

However, in the case of the Bounce Back Loan Scheme, the British Business Bank that set it up said that personal guarantees were not to be taken by lenders as a condition of providing the loans. In fact, the other major Covid-19 finance that was widely provided was The Coronavirus Business Interruption Loan Scheme (“CBILS”) and in that scheme, only for loans over £250,000 could a lender insist on a personal guarantee from a company Director.

Can You Dissolve A Company With A Bounce Back Loan?

Dissolving a company is a way to close it down when it has no further use.

Another article summarises how to dissolve a company.

dissolve with a bounce back loan to write off a bounce back loan?

What Is The Dissolution Of A Company?

The dissolution of a company is the process by which a limited company’s life is ended. Once the company is no longer registered at Companies House it ceases to exist. In order to dissolve a company you have to fill in form DS01 but this is not permitted unless creditors are notified and given the opportunity to object.

It is likely that if you have an outstanding Bounce Back Loan and you inform a lender of an intention to dissolve the company they will object. It is therefore not an appropriate way to close down your limited company.

This position is no different essentially if your company has outstanding HMRC tax debts. If you tried to dissolve the company then HMRC would likely object and even if they missed out they would conceivably restore the company later on and put it into Compulsory Liquidation.

So in the event that you are struggling to pay a Bounce Back Loan, the dissolution of the company is not a suitable process to adopt. The Company will have to go into a Liquidation process to be dealt with by a Liquidator. Oliver Elliot can deal with this for you. Just contact us as we know insolvency inside out.

What Next?

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Disclaimer: Can You Write Off A Bounce Back Loan?

This page Can You Write Off A Bounce Back Loan? is not legal advice and should not be relied upon as such. This article Can You Write Off A Bounce Back Loan? is provided for information purposes only. You can contact us on the specific facts of your case to obtain relevant advice via a Free Initial Consultation.

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