What happens to a bounce back loan if my company closes?

Who owes a bounce back loan?

The company. The scheme was designed without personal guarantees, so the lender's claim on closure is a claim in the liquidation like any other unsecured debt.

That is the general position, and it is why directors are usually not pursued personally for the balance.

When can a director be pursued?

• The money was used for personal purposes rather than the benefit of the business.
• The turnover figure on the application was overstated, so the company borrowed more than it was entitled to.
• More than one loan was taken where only one was permitted.
• The loan was drawn when the company had no realistic prospect of continuing, and the funds were paid out to connected parties.

In those situations a liquidator, or the Insolvency Service, can look at the director's conduct, which may lead to a claim or to disqualification proceedings.

What will the liquidator ask?

1. What the loan was applied for and what figure was declared.
2. What the money was actually spent on, traced through the bank statements.
3. Whether any of it went to directors or connected parties.
4. What the company's position was at the time it was drawn.

If the answer is that the money went into the trade, this is usually a short conversation. Collecting the evidence in advance makes it shorter.

What should I do before closing the company?

Pull together the application, the loan agreement, and the bank statements showing what happened to the funds, and raise anything that worries you at the first conversation. Tell us early rather than late.