In light of over 1.4 million businesses in the UK taking up the government’s Bounce Back Loans, now running at £45m worth of borrowed money, there has been a new piece of legislation released. 
 
The Bounce Back Loan Scheme (BBLS), was introduced by the UK government in April 2020 as a support package for businesses affected by the COVID-19 pandemic. 
 
The Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill gives the Insolvency Service retrospective powers to investigate directors of dissolved companies who are suspected of BBL fraud. 

The new Bill 

The reasoning behind this Bill is that, because the Bounce Back Loans were unsecured, if a company cannot repay the loan, say in the case of insolvency, the company and not the director will be responsible for the debt. 
 
Therefore, there is no personal liability for director(s) to repay the loan if their business fails, providing that they complied with their statutory and financial duties. In these cases, it is likely that the debt may never be repaid if a company is wound down. 
 
This new Bill was introduced as a ‘strong deterrent against misuse’ of the dissolution process when a company faces insolvency. It is believed that some company directors are taking advantage of the legal loophole to avoid repaying their BBL by deliberately dissolving their company.  
The extended powers afforded to the Insolvency Service includes the ability to investigate directors who attempt to avoid making their BBL repayments and issue sanctions to disqualify such directors for up to 15 years. 
 
Previous to this new Bill, the Insolvency Service only had the power to disqualify directors of live companies or those undergoing an Insolvency Process. 

Company dissolution versus company liquidation 

Dissolution or ‘striking off’, is a way of closing down a limited company by removing it from the Company’s House official register. This is not the same as a company being liquidated. 
 
The correct use of company dissolution is when there are no outstanding debts/liabilities or if the debt and/or liabilities can be resolved within 12 months of the dissolution. 
 
However, if a company is forced to close down and has unpaid debts, then it is more likely it will need to be liquidated. During the liquidation process, the company’s assets are sold, and the proceeds are used towards paying off its creditors. As all Bounce Back Loans were unsecured, there is no personal liability for the director to pay it back. 

Closing the loophole 

The reason for the introduction of this Bill is to deter those who take advantage of this legal loophole and ensure all those who are legally bound and able to pay back their BBLs do so. 
 
The extended powers afforded to the Insolvency Service, means that they are now able to hold to account any company directors looking to avoid their responsibilities. If found guilty of deliberately trying to leave their own employees and the British taxpayers out of pocket, the Insolvency Service will not hesitate to disqualify them. 

If you have a BBL 

If you are one of the many who has a government BBL and are worried about making the repayments, there is a light at the end of the tunnel. As of the 8th February 2021, you were able to delay your loan repayments by an extra six months. 
 
This incentive is designed by the government to give businesses a better chance of surviving the financial impact of shutdowns or reduced trading during the pandemic, by offering them greater flexibility when repaying their debt. 
 
The new government ‘Pay as You Grow’ scheme allows you to make no repayments until 18 months after you took out your BBL. You can also extend the length of your repayments from six to ten years, which could reduce your monthly repayment amount by almost half. For more information click here. 
 
If you are concerned about your company’s ability to repay your BBL, please contact us to get some advice. 
 
 
 
 
Written by: 
 
Nicola J O'Sullivan -  
Effective Accounting 
 
Founder | Xero Champion | IR35 Expert 
 
 
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