Am I liable for my limited company’s Bounce Back Loan?

Amid the announced jailing of a Bounce Back Loan fraudster, it is clearly very worth limited company contractors knowing the answer to the following, still often-asked question, writes Matthew Fox, partner at Beacon Lip Limited.

And that question is this -- “Am I liable for my company’s Bounce Back Loan?”

Well, the Bounce Back Loan (BBL) scheme started in 2020, as a response by the government to the difficulties encountered by businesses at the start of the Covid-19 pandemic. 

What was the Bounce Back Loan scheme’s aim?

Many of us will remember all too clearly the sudden cessation, or the drastic diminution of trading in many sectors, notably hospitality, leisure, travel and accommodation.

The purpose of the BBL, therefore, was aimed very much at those sector businesses, rather than being for any business-owner’s personal use.

Bounce Back Loan terms: explained

The scheme aimed to help SMEs borrow amounts of money between £2,000 and 25% of their turnover, up to a maximum of £50,000. The loan was guaranteed by the government, with no interest to pay for 12 months.

After that 12-month period, the interest rate was to be 2.5% per annum.

Businesses that requested a BBL below the maximum to which they were entitled could request the amount to be topped up. The scheme, and all top-up requests, ceased on Match 31st 2021.

Unfortunately, it has become increasingly obvious that many Bounce Back Loans have been misused, and the government is pursuing offenders with renewed rigour.

There are three common areas of misuse and/or abuse.

1. Abuse of BBLs with salary

One of the most common abuses of Bounce Back Loans was by means of an excessive salary. 

While you could have used an element of the loan to draw a salary, it must not have been greater than the amount that you were taking before the covid restrictions.

2. Abuse of Bounce Back Loan with dividends

A dividend (by its very nature) should only be taken from the distributable reserves of the business. If the Bounce Back Loan was used to make dividend payments, it will be deemed illegal.

3. BBL usage by the recipient’s family members

Another common abuse of the BBL scheme has been the purchase of items for home or personal use – a new car or home improvement, for instance.

Again, such usage of a BBL is wholly incorrect.

Likewise, repaying a family member’s loan may also be seen as invalid and actionable by the authorities, such as the Insolvency Service. In particular, if your business should subsequently fail, the repayment may be termed a ‘preferential payment’ and overturned by the court.

In these cases, contractors should be aware that the amounts taken from the company and put to personal use would have to be repaid -- in full.

Bounce Back Loan considerations for contractors

Always keep in mind that the government intended the BBL for the economic benefit of your business – not any individual(s) behind or associated with your business. The loan should have therefore been used to make payments to company creditors or, perhaps, to invest for the good of the company during the pandemic.

However, if the funds received were insufficient to allow all the company’s liabilities to be met in full, you should seek professional advice from a licensed insolvency practitioner. You should strongly consider enlisting such a professional to make sure that the company is indeed viable going forward, and that you, as a director, are not committing any offences by making such payments.

On the other hand, if you have misused a BBL and are not able to repay the sums taken, you may be reported to the Insolvency Service for fraud.

This will carry not only a personal liability, which could result in your bankruptcy, but also carry a criminal record.

Bounce Back Loan advice?

As a result of the potentially very serious consequences in this area, anyone in doubt, or anyone who just requires for further help and information on BBLs, can contact me, Matthew Fox, a licensed insolvency practitioner, here at Beacon LLP. 

Tuesday 28th Jun 2022
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Written by Matt Fox

Matt specialises in corporate and restructuring solutions with over 30-years’ experience having started his career in 1990 with Ernst & Young. He has since worked with other national firms, undertaking business restructuring in the UK and overseas. Matt later joined BDO undertaking restructuring assignments with the main clearing banks working in the property, construction and leisure sectors. Matt is now co-owner of Beacon LLP and is focused on helping SMEs.

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