Can I strike a company off if there is an outstanding bounce back loan?

When contemplating the closure of a company, many directors wonder about the feasibility of striking off a company with an outstanding Bounce Back Loan (BBL). Understanding the legal and financial implications is essential for making an informed decision.

What is a Bounce Back Loan?

A Bounce Back Loan Scheme (BBLS) was introduced by the UK government to support small and medium-sized businesses affected by the COVID-19 pandemic. These loans are government-backed and were provided with minimal credit checks, offering a lifeline to many struggling businesses. However, they come with the obligation of repayment, and outstanding loans must be managed responsibly.

Striking Off a Company

Striking off, or dissolving, a company is a voluntary process where the directors apply to have the company removed from the Companies House register. However, this requires meeting a very specific criterion.

Implications of an Outstanding Loan

1. Debt Repayment: Before striking off the company, the Bounce Back Loan must be fully repaid. The company’s assets can be used to settle this debt. Directors should ensure that all obligations are cleared.
2. Notification of Creditors: All creditors, including the institution that provided the Bounce Back Loan, must be informed of the intention to strike off the company. If there are outstanding liabilities, creditors can object to the strike-off.
3. Liquidation as an Alternative: If the company cannot repay the Bounce Back Loan, directors may need to consider liquidation instead of striking off. Liquidation is a formal process where an appointed liquidator handles the company's debts, including the Bounce Back Loan, through asset sales and other means.

Personal Guarantees and Liabilities

Bounce Back Loans do not require personal guarantees, meaning directors are not personally liable for the loan unless there was fraud or wrongful trading involved. However, misuse of funds or failure to follow proper procedures can result in personal liability and potential legal consequences.

Practical Steps for Directors

1. Review Financial Obligations: Assess the company’s financial position and outstanding liabilities, including the Bounce Back Loan.
2. Repay Outstanding Debts: Ensure all debts, including the Bounce Back Loan, are repaid by the Company assets.
3. Communicate with Creditors: Notify all creditors of the intention to strike off the company and resolve any objections.
4. Consider Liquidation if Necessary: If the company cannot settle its debts, seek advice from an insolvency practitioner about the possibility of liquidation.

Conclusion

In conclusion, striking off a company with an outstanding Bounce Back Loan (BBL) requires careful consideration of legal and financial responsibilities. Directors must ensure that all debts, including the Bounce Back Loan, are fully repaid before proceeding with the strike-off process. Failing to meet these obligations can result in objections from creditors and potential legal consequences for the directors. If the company cannot repay its debts, liquidation may be a more appropriate alternative, allowing an appointed liquidator to manage the company's assets and settle its liabilities.

^{Photo by Chris Panas}