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Bounce Back loans: What are the options when a company enters liquidation?

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The Bounce Back loan (BBL) scheme was introduced to support businesses during the COVID-19 pandemic. However, some of those businesses have since gone into liquidation or are facing insolvency. We set out some considerations and options for companies that have taken out Bounce Back loans and subsequently enter liquidation, including whether there is personal liability for directors.

  • If you applied for or utilised a BBL appropriately then there should be no personal liability for the director in the event of a liquidation.
  • If you’re struggling to make the BBL repayments and operate a profitable (enough) business, you could approach the lender to renegotiate; take a payment holiday, reduced monthly repayments for a period, or an extension of the BBL of up to 10 years.
  • The lender will be most unlikely to accept that the borrower just cannot pay and simply write the loan off. To be able to claim under the government loan guarantee scheme, the lender should have followed the usual collection methods. If a company borrower enters into an insolvent liquidation, that appears to satisfy the bank being able to access the government guarantee.
  • In summary, if a company with an outstanding BBL enters an insolvent liquidation, and the BBL was both appropriately applied for and utilised then there would appear to be no personal liability for the company director(s).

However, if a company has either applied for a Bounce Back loan or utilised it inappropriately then there may be some further considerations.

  • BBLs to corporate entities are not subject to a director personal guarantee or security.
  • However, the purpose of a BBL was to provide an economic benefit to businesses who had been adversely affected by the COVID-19 pandemic. Therefore, where the director(s) have incorrectly applied for a BBL or utilised the funds inappropriately, the position is likely to be different and there may well be a personal liability/civil recovery against the director(s) in the event of an insolvent liquidation. In such a situation, a liquidator could take a commercial view to any settlement.

Why can’t the company simply be dissolved?

  • Where a BBL is outstanding, it’s likely there will be an objection to the dissolution application, possibly by the lender.
  • In spite of the above point, if the company were to be dissolved, then the Insolvency Service has introduced relatively new legislation allowing it to disqualify directors of dissolved companies where there is misconduct (inappropriate application for and use of a BBL, for instance). Following any such disqualification, the Insolvency Service could apply for a compensation order against the directors.

How can a liquidation be funded?

  • The usual position is from the assets held by the company, or even sometimes as funded by the directors.
  • If directors were in receipt of a salary from the company then they may be able to claim a redundancy payment funded by the Redundancy Payments Service.


  • An insolvent liquidation should allow the lender to claim under the government guarantee scheme and if the BBL was applied for and utilised appropriately, there should be no personal liability to the director.
  • Where there has been misuse of, or misapplication of, the BBL then the director(s) may be liable to a recovery action. A commercial view will generally be taken to any such recovery.
  • Any such settlement is likely to provide mitigation to possible disqualification as a director but will also likely protect against any potential compensation order.
  • In either case, an insolvent liquidation will ultimately provide certainty that the position has been reviewed and, where appropriate, a commercial settlement agreed, bringing the matter to a close.

Need help?

We are available to meet with you or your clients, initially without cost or commitment, to discuss and consider specific situations. Contact Andrew Kelsall on 0330 024 0888 or at

Andrew Kelsall


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Larking Gowen


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