The Bounce Back Loan Situation
The Bounce Back Loan Scheme (BBLS) provided government-backed loans of up to £50,000 to UK businesses during the COVID-19 pandemic. Over 1.5 million loans were issued, totalling approximately £47 billion. With repayments now due, a significant number of companies are finding it difficult or impossible to meet their obligations.
Unlike most commercial loans, Bounce Back Loans are 100% guaranteed by the UK government. This means that if a company defaults, the lender (typically a bank) is repaid by the government. However, this does not mean directors are automatically free from scrutiny.
Director Liability and Bounce Back Loans
The government has made it clear that it will investigate the use of Bounce Back Loans where there is evidence of fraud or misuse. The Insolvency Service has been given additional resources to investigate directors of companies that have gone into insolvency with outstanding Bounce Back Loans.
Key areas of investigation include whether the loan was used for legitimate business purposes, whether the company was eligible for the loan at the time of application, and whether the director made accurate representations in the loan application. Directors found to have misused Bounce Back Loan funds face disqualification, personal liability, and in serious cases, criminal prosecution.
What if the Company Cannot Repay?
If your company is genuinely unable to repay its Bounce Back Loan due to the impact of the pandemic or subsequent trading difficulties, there are legitimate insolvency options available. A Creditors' Voluntary Liquidation (CVL) is often the most appropriate route for a company that has ceased trading or is no longer viable. In a CVL, the Bounce Back Loan is treated as an unsecured creditor, and the government guarantee means the bank is repaid — not the director personally.
However, the liquidator will investigate the use of the loan funds. If the funds were used for legitimate business purposes, directors are generally protected from personal liability. If misuse is found, the consequences can be severe.
Pay As You Grow Options
The government introduced "Pay As You Grow" (PAYG) options for Bounce Back Loan borrowers, including the ability to extend the loan term from six to ten years, reduce monthly repayments to interest only for up to six months, and take a repayment holiday of up to six months. These options can provide short-term relief but do not address underlying insolvency issues.