Bounce Back Loan in liquidation: are you personally liable?

You are not personally liable for a Bounce Back Loan if the company is liquidated, provided the money was used for the business and you did not do anything else that makes you liable; the second half of that sentence is where directors get into trouble.

The short version of how the scheme worked

Bounce Back Loans were issued between May 2020 and March 2021: up to £50,000 or 25% of turnover, six years at 2.5%, nothing to pay for the first twelve months, and no credit check worth the name. The government guaranteed the lender 100% of the loan. Lenders were specifically not allowed to take a personal guarantee from the director.

That last point is the one that matters. If your company has a Bounce Back Loan and goes into liquidation, the lender claims what it can from the liquidation, then claims the shortfall from the government under the guarantee. It does not come to you, because it has nothing in writing from you to come to.

By mid-2025 the government guarantee had been paid out on just over a quarter of all Bounce Back Loans, with a further 5% in arrears or default, so the position of a director whose company cannot repay one is not unusual and is not, by itself, treated as misconduct.

What the bank can do

Not much, personally. The bank can:

• Demand repayment from the company and default the loan.
• Record the default against the company.
• Submit a claim in the liquidation like any other unsecured creditor.
• Claim against the government guarantee for the shortfall.

The bank cannot pursue you personally for the loan, cannot register a default against your personal credit file, and cannot take security over your home. If a bank or a debt collector acting for one suggests otherwise, ask them to show you the guarantee you signed. There is not one.

Where the protection stops

The no-guarantee rule protects you from the lender. It does not protect you from a liquidator, the Insolvency Service or the courts if the loan was misused or if the company was run badly around it. There are four situations that turn a Bounce Back Loan into a personal problem.

1. The money did not go into the business. The loan terms required it to be used for the economic benefit of the business. Paying it straight to yourself, buying a personal asset, repaying a personal debt, or lending it to a family member is misuse. In a liquidation the liquidator will trace it, and in a small company with one director it is not hard to trace. The usual outcome is that the payment to you is treated as an overdrawn directors’ loan and you are asked to repay it. The less usual outcome is a referral for fraud.

2. The application was not accurate. Directors self-certified turnover, and some overstated it to get a bigger loan. Companies that were already in financial difficulty on 31 December 2019 were not eligible and some applied anyway. The Insolvency Service has been active on this: in 2024-25 alone, 736 of its 1,036 director disqualifications were for Covid loan abuse, and bans in these cases commonly run from six to eleven years. Where the overstatement was deliberate, criminal prosecution has followed in a small number of cases.

3. The loan was used to pay you or a connected party ahead of other creditors. Drawing down £50,000 and using it to clear your own directors’ loan, repay a family member, or pay a dividend while HMRC went unpaid is a preference. A liquidator can reverse it, and it will feature in the conduct report.

4. The company traded on with the loan when it should have stopped. A Bounce Back Loan that kept a company alive for a year while it ran up more debt it could never repay is evidence in a wrongful trading claim. The loan itself is not the problem; trading past the point of no return is.

If none of those four apply to you, the loan is a company debt that dies with the company, and you can say so to anyone who asks.

What the liquidator will look at

Every liquidator now has a standard set of questions about Bounce Back Loans because the Insolvency Service requires them. Expect to be asked:

• When the loan was drawn and what the bank balance was that day.
• Where the money went in the following 90 days, payment by payment.
• What turnover figure was given on the application and what the accounts show.
• Whether any payments went to directors, shareholders or connected parties.
• Whether the company was already behind with HMRC at the time.

Have the answers ready and evidenced. A director who can show the loan paid wages, rent and suppliers has nothing to fear from these questions. A director who cannot explain £20,000 of transfers has a problem, and it is better to raise it with your own practitioner before appointment than to have it found afterwards.

If you cannot repay but the company is still trading

Liquidation is not the only route. The Pay As You Grow options let you extend the term to ten years, take an interest-only period or a six-month payment holiday. Those were time-limited and many directors have already used them, but it is worth checking the current position with the lender before deciding the loan is the reason to close.

If the company’s problems are wider than the loan, the Bounce Back Loan should not drive the decision either way. It is one unsecured creditor among several. Run the two insolvency tests and decide on the whole picture.

What to do today

1. Pull the bank statements for the 90 days after the loan was drawn and annotate where the money went.
2. Find the original application and check the turnover figure against the accounts.
3. Check with the lender what Pay As You Grow options are still open to the company.
4. If the company cannot pay its debts, speak to a licensed insolvency practitioner about the whole position, not just the loan.