News

Government-backed Bounce Back Loans of up to £50,000 were relatively fast, easy to apply for, and did not require personal guarantees from company directors.

However, something that many directors are unaware of is, although personal guarantees were not sought, there are still certain conditions that must be met to ensure they are not responsible to repay the loan personally.

Directors can be made personally liable for the repayment of a Bounce Back Loan if the business becomes insolvent and the directors have:

• Not used the loan in accordance with the loan agreement perhaps using the funds to repay personal debt, or to fund the purchase of a personal asset e.g., a car
• Used the loan to pay certain creditors in preference to others

When a company enters a formal insolvency procedure, the liquidator will investigate the reasons for the insolvency and look at the actions of the company directors in the period leading up to the insolvency.  This will include how the loan was used.

This was highlighted in a recent case where two directors, fraudulently inflated the turnover of their business to meet the eligibility criteria for a Bounce Back Loan and did not use the loan for a business purpose.  They were forced to repay thousands of pounds to the liquidator, as well as being disqualified from being a director, for 10 and 11 years respectively.

If your company is struggling financially, please contact a member of our team.  It is important to take advice at an early stage and we are here to help.  We have specialists located in our Dalston, Dumfries, Penrith and Workington offices.