Closing a company with a Bounce Back Loan outstanding

A company with a Bounce Back Loan it cannot repay is closed by liquidation, not by strike-off. The lender objects to any strike-off with the loan outstanding, so the choice is between a liquidation you arrange and one a creditor forces.

Why strike-off does not work

A DS01 application to strike the company off requires the directors to confirm the company has no outstanding liabilities, and Companies House publishes the application in the Gazette for two months so creditors can object. Lenders monitor those notices for Bounce Back Loan borrowers as a matter of routine, and they object. The strike-off is suspended, the company stays on the register, the loan stays due, and the attempt is now on the record. HMRC objects on the same basis for any unpaid tax. Attempting to strike off with the loan outstanding has also featured in a number of disqualification cases, because it amounts to a declaration the directors knew to be false.

If the company has repaid the loan and every other debt, strike-off is fine. If it has not, it is not available.

Route one: creditors’ voluntary liquidation

The standard route. A licensed practitioner is appointed, the lender claims in the liquidation alongside other creditors, the company’s assets (if any) are distributed, and the lender recovers its shortfall from the government guarantee. The company is dissolved at the end. You are not liable for the loan unless one of the four exceptions in the companion guide applies.

The cost is the obstacle most directors raise. A full-service CVL for a small company runs £4,000 to £8,000 plus VAT. Where the Bounce Back Loan is the only significant debt and the company has no assets, fixed-fee practitioners offer CVLs from around £2,000 to £3,000 plus VAT, and some will take instalments. Against a £50,000 loan that would otherwise follow the company indefinitely, and against the loss of control if a creditor petitions instead, it is usually the right spend.

Route two: a compulsory liquidation by a creditor

If the directors cannot or will not fund a CVL, the company is eventually wound up by a creditor, usually HMRC rather than the lender. The Official Receiver takes over. It costs you nothing at the point of order, but you lose the choice of practitioner and timing, the investigation into the loan’s use is conducted by the state rather than a practitioner you briefed, and the process can take a year or more to start. Appropriate only for a company with nothing to protect and a director with nothing to explain.

Route three: do not close yet

If the company is otherwise viable and the loan is the problem, closing may be the wrong answer. Pay As You Grow let borrowers extend the term to ten years, take a six-month interest-only period, or a six-month payment holiday. The windows for these were time-limited and many have now been used, but check the current position with the lender before deciding. A Time to Pay arrangement with HMRC can also free up the cash to keep the loan serviced. Run the two insolvency tests on the whole picture, not on the loan alone.

What the liquidator will want on the loan

Where the money went in the first 90 days after drawdown, the turnover figure declared on the application, whether the company was already in difficulty at the end of 2019, and whether any of the loan paid directors or connected parties. Gather the bank statements and the application before the first meeting with a practitioner, so the conversation about any awkward payments happens before appointment and not after.

What to do today

1. Pull the bank statements for the 90 days after drawdown and the original application.
2. Decide whether the company is viable without the loan problem. If it is, ask the lender about Pay As You Grow before anything else.
3. If it is not, get two quotes for a CVL, including at least one fixed-fee practitioner.
4. Do not file a DS01 with the loan outstanding.