By Rob Adamson, Restructuring and Insolvency Partner, Armstrong Watson LLP

AT the height of the pandemic, the Government offered emergency loans up to £50,000 to businesses to cover their running costs at a time when trading was very difficult, if not impossible. The loans have a 100 per cent Government-backed guarantee for the lender and were effectively interest-free for the first 12 months. After this period repayments of the loan and interest – at a rate of 2.5 per cent – started. Businesses could extend the repayment period from six to 10 years or repay the loan early without paying a fee.

What should I do if my company can’t repay the loan?

Firstly, look carefully at the viability of your business. If you are experiencing short-term cash flow difficulties you should contact your lender. You may be able to move to interest-only repayments for six months or even pause your repayments for the same period. If there is not a future for your company liquidation may be the best option. It is best to make this decision early when there are still funds in the company to pay for this process.

Can I dissolve the company to avoid the cost of a liquidation?

Dissolution is most appropriate for companies who have ceased to trade, filed their final accounts, all returns with HMRC and have paid all their liabilities. An application to strike-off must be sent to all creditors, including the bank that made the Bounce Back Loan. Creditors can object to the striking off. Directors who use this process inappropriately can face a fine and possible prosecution.

Can I become personally liable for my company’s bounce back loan?

If your company enters into an insolvent liquidation, generally if the loan was taken out in the company’s name and there are insufficient assets in the liquidation, the bank will seek compensation from the Government. However, it is likely the declarations made at the time the bounce back loan was taken out will be examined. If directors falsely stated the loan was required because the company was adversely affected by Covid-19 and that the company was not already insolvent or in financial difficulties on December 31, 2019, actions can be taken to make directors personally liable for this fraudulent action.

If your company is struggling to meet its loan repayments do not bury your head in the sand. Contact Rob Adamson to find out what steps can be taken to give it a chance of survival. Call 0113 2211336 or email