The Bounce Back Loans were a vital lifeline for many businesses during the pandemic, allowing small and medium-sized businesses to borrow between  £2,000 and £50,000, at a low rate, guaranteed by the Government. 

Following the two year anniversary of the introduction of the loans, the Government has released two Fact Sheets to provide complete clarity to Directors on the conditions of loans and the terms of repayment.  

It is important to note, if a Director has utilised the government funds for the sole use of their business and met the terms and conditions of the loans they have nothing to be concerned about should the company enter a mode of Insolvency in the future. 

Bounce Back Loans 

The Bounce Back Loans were awarded to eligible businesses, on the provision that they could not be used for personal use. The conditions of the payments were that the full amount was to be repaid over a six or ten year period, with the payments to begin 12 months after the company received the loan.  

The Fact Sheet warns that if the money is not repaid, directors and company owners are a risk of investigation by the Insolvency Service – even if the company has been dissolved.  

With official estimates that between £3.3bn and £5bn was claimed fraudulently through the scheme*, the Fact Sheet also spells out the action that could be taken against the company and the benefactors of the loan.  

The type of misconduct that is being investigated includes any of the awarded money being used for personal benefit, providing incorrect or false information during the application process or dissolving the company in order to avoid repayments.  

  If subsequently a Director is found guilty of misconduct, they could be disqualified from acting as a Director, and the company could be wound up by the Court or a  Court Order may be made against the Director. 

Director Loans 

The Director Loan’s Fact Sheet, released in conjunction with the Bounce Back Loans insight, reiterates the importance of Directors keeping a record of any money taken or paid into a company. 

A Director’s Loan is a payment or loan taken from a company account that is outside a salary, dividend or expense repayment. It is important that a Director have their own loan account that shows all withdrawals from the company and any personal expenses paid with the company’s money. A personal expense is ‘any expense that is not incurred wholly and exclusively for the purpose of the business,  and must be recorded and paid back to the business.  

The Fact Sheet explains that company accounts should show all transactions of money being paid into and withdrawn from the company. Any money borrowed still legally belongs to the company and has to be paid back in full – even in cases of insolvency.  

If a company is in a mode of Insolvency the Insolvency Practitioner is obliged to recover the monies for the benefit of all stakeholders. The practitioner will make enquiries as to the ability of the Director to repay the Loan and will try to work with the Director on a time scale that will see a return in full and if necessary provide as long as 36 months to repay should this be necessary. It is important that the  Director works with the Insolvency Practitioner in resolving the matter failing which legal action may be taken against the Director to collect any money that remains outstanding to the company. 

Repayments of money that has been previously paid into or loaned to the company would not be considered to be a Director Loan, but must still be recorded in the same manner as all transactions. 

If any of your clients have taken out one of the Government-Backed Loans, or have an overdrawn Directors Loan account and are in need of advice, our team are on hand to offer advice and support. Get in touch with us today.  

The Fact Sheets can be found here and here.

*https://www.ft.com/content/37dad961-6582-45bf-8bc6-4dd5f934cba8