In response to the economic upheaval caused by the Covid-19 pandemic, the Bounce Back Loan Scheme (BBLS) was launched in May 2020 to provide much-needed financial support to struggling businesses. The scheme was instrumental in boosting cash flow and supporting day-to-day operations, but unfortunately, some businesses have encountered difficulties in meeting their repayment obligations.
If you have received a demand letter from your bank regarding your Bounce Back Loan, it is understandable to feel uncertain about how to proceed. It is important to remember that the government guarantee provided by the scheme applies to lenders, not businesses. Therefore, it is essential to explore your options and seek professional advice to determine the best course of action for your individual circumstances.
Despite the challenges faced by some businesses, the Bounce Back Loan Scheme played a critical role in helping countless organisations to weather the financial storm caused by the pandemic. While repayment concerns may be stressful, it is essential to remember that there are resources available to support businesses during this challenging time.
The Corporate Structure Protects Directors from Personal Liability for BBL Debts
One important aspect to keep in mind as a company director is that you are not typically personally liable for your company’s debts. This is due to the fact that your business is considered a separate legal entity, and its finances are generally separate from those of its directors.
However, it is essential to understand that there are circumstances where directors may be held personally liable, particularly if there has been misuse of the Bounce Back Loan Scheme. Misuse can come in many forms, but some examples include using the loan for personal expenses, making fraudulent claims or providing false information to obtain the loan, or using the loan for activities outside the scope of the business.
In such cases, the ‘veil of incorporation’ that typically shields directors from personal liability may be lifted, and legal action may be taken against them. It is crucial for directors to ensure that they comply with the terms of the Bounce Back Loan Scheme and use the funds for legitimate business purposes only. Seeking professional advice and guidance can help directors to understand their legal obligations and minimise the risk of personal liability.
Examples of Misuse of Bounce Back Loans
It is important to use the funds from a Bounce Back Loan for legitimate business purposes only. Here are a few examples of how the loan may be misused:
Using the money for personal purposes:
The Bounce Back Loan scheme was intended to provide financial support for the economic benefit of the business, such as paying suppliers, employee wages, commercial rent, or day-to-day operational expenditures. Therefore, using the loan for personal purposes, such as to pay for personal expenses or to purchase personal assets, is deemed as misuse of the loan.
Overstating business turnover on the loan application:
The maximum allowable Bounce Back Loan amount was based on up to 25% of business turnover. Overstating your business’s turnover on the loan application to receive a higher loan amount is considered against the rules of the scheme and therefore deemed as misuse.
Giving the funds to a family member/third party:
Handing over the funds from your Bounce Back Loan to a family member or other third party is considered to be a misuse of the loan. This is because the scheme requires the loan to be used for business purposes and the funds must remain within the business.
It is important to note that if any of the above scenarios or other forms of misuse are identified, the director may be held personally liable, and legal action may be taken against them. Therefore, it is crucial to use the funds from a Bounce Back Loan for legitimate business purposes and in compliance with the terms of the scheme.
Speculative Demands for Bounce Back Loan Repayments from Banks
In some instances, banks such as Santander, may send out speculative letters to businesses to chase Bounce Back Loan arrears and see if they will pay. These letters are often automated and sent out after three months of missed repayments.
If you have received a demand letter from your bank regarding your Bounce Back Loan, it is worth considering whether it could be a speculative letter. Seeking professional advice from a licensed insolvency practitioner (IP) is also advisable.
An IP can provide valuable guidance and insight into your business’s unique circumstances and help you make the best decision. They will be able to assess the demand letter and provide advice on the appropriate course of action to take. This may include negotiating with the bank for more favourable repayment terms or exploring other debt management solutions.
In short, seeking professional advice from an IP can help you navigate the often-complex issues surrounding Bounce Back Loan repayments and ensure that you are making the right decision for your business.
Directors are Generally Not Personally Liable for Business Loans
As a limited company director, under normal circumstances, you are not personally liable to repay business funding. However, in the event of insolvency, the corporate protection may be removed if there is misconduct or misappropriation of funds.
It’s important to understand that the situation around Covid financing is complex. The letter you have received from your bank regarding your Bounce Back Loan may be a speculative attempt to recover the money. However, it’s essential to obtain professional advice from an insolvency practitioner to make an informed decision on the appropriate course of action.
In the event that your business enters insolvency, the insolvency practitioner will assess the company’s financial situation and review any potential misconduct or misappropriation of funds. If misconduct is found, the director may be held personally liable for the business’s debts.
Overall, it’s important to understand the nuances of the Bounce Back Loan scheme and seek professional advice to make informed decisions regarding repayment.
Seek Professional Help to Manage Bounce Back Loan Issues
If you have received a demand letter in relation to your Bounce Back Loan, it’s crucial that you don’t ignore it and seek professional guidance. As experts in insolvency, InsolvencySupport.co.uk can provide reliable advice and help you understand your options and the potential consequences.
You can arrange a free, same-day consultation with us to discuss your situation and receive the support you need. Our broad network of local offices throughout the UK ensures that we are always accessible and ready to assist you.
Don’t hesitate to reach out to InsolvencySupport.co.uk for professional guidance on managing your Bounce Back Loan and navigating any related issues.