Bounce Back Loans and the risk of personal liability

By Begbies Traynor

20 May 2020

ds19-07-16000477.jpg

As many will be aware, following the widespread criticism of the Coronavirus Business Interruption Loan Scheme (CBILS), the Government responded with the launch of the Bounce Back Loan Scheme (BBLS) as a faster, more accessible alternative.

Bounce Back Loans are aimed at, but not limited to, smaller business and give access to loans worth up to 25% of its turnover to a maximum of £50,000. They are provided interest-free for the first 12 months and are 100% Government backed lowering the risk for lenders.

Take up has been significant – there were 130,000 applications in the first 24 hours and loans of worth over £2bn were lent during this initial period.

Interest-free loans, Government-backed...what’s the risk?

Due to the ease of the application and the generous payment terms there is a risk that many will view Bounce Back Loans as ‘free money’. This is, of course, not the case and directors must remember it is the responsibility of the Company to pay back the loan once monthly repayments begin following the initial 12-month grace period.

When the ease of application is coupled with the fact that the Company directors will not need to provide a personal guarantee, it doesn’t take a great leap of imagination to recognise that some directors may take advantage of the scheme to repay themselves or personal debts.

The assumption may be that if the Company is unable to recover from the impact of Covid-19 and subsequently enters into a formal insolvency process, then responsibility for repaying the Bounce Back Loan will remain solely with the company and liability cannot and will not be transferred to directors.

However, this will not be case if the directors have acted improperly and breached their fiduciary duties or abused the loan scheme. Whilst wrongful trading provisions have been temporarily suspended in response to the Covid outbreak other provisions of the Insolvency Act and Companies Act remain in full force and operation.

Directors therefore need to be mindful of potential misconduct and preference payments. The Bounce Back Loans can be used to refinance existing liabilities, although caution needs to be exercised if you are planning on doing this. Take for example a company which has a significant amount of existing debt which is owed to a variety of creditors and an element is personally guaranteed or personally owed to the director or their associates. In this example, if the director chooses to pay off only that debt with a personal link leaving unsecured creditors unpaid, then this is likely to be seen as an act of misfeasance through the making of a preference.

Such a transaction is likely to be challenged by any appointed Insolvency Practitioner and could lead to possible personal liability for repayment.

If as a Director you are considering taking out a Bounce Back Loan, particularly if you are intending to use these funds to pay back existing borrowing, it is important to take advice from a licensed insolvency practitioner beforehand to remove the risk of inadvertently falling foul of the rules surrounding preference payments and other potential actions Obtaining early advice will be an added layer of protection in the unfortunate event the Company is subsequently placed into insolvency.

You can arrange a consultation with Ian McCulloch at Begbies Traynor by calling on 01772 202000 or 07854 031177.

Latest news

1

Three weekly domestic waste collection considered in plans Waste recycling Blackpool

Three weekly domestic waste collection considered in plans

01 Jul 2025

2

Graham Engineering confirms acquisition to a2e Industries Graham Engineering

Graham Engineering confirms acquisition to a2e Industries

01 Jul 2025

3

Training 2000 celebrate 'Good' rating by Ofsted Training 2000

Training 2000 celebrate 'Good' rating by Ofsted

01 Jul 2025

4

Fox Group acquires J Fisher and Sons Colin Fisher, Paul Fox CEO and Gary Fisher.

Fox Group acquires J Fisher and Sons

01 Jul 2025

5

Beever and Struthers strengthen leadership team with new partners Dean Curtis and Joe Diston

Beever and Struthers strengthen leadership team with new partners

01 Jul 2025

Background image for hub sign up block

LBV Hub

Leverage Lancashire Business View platforms

Post your news
Post your events
Post your offers
Build your network
Improve your SEO
Gain coverage in the magazine
Sign-up
Events
LBV123 July/August Launch Event
Lancashire Business View magazine launch
Networking
16 Jul 2025

LBV123 July/August Launch Event

Burnley

08:30 - 10:30

Lancashire Built Environment Conference 2025
BEC 315 X 315 Px
Networking
25 Sep 2025

Lancashire Built Environment Conference 2025

Blackpool Football Club, Blackpool, FY1 6HX

08:30 - 13:00

CMI Level 5 Management and Leadership Course
UCLanAerialCampus.jpg.jpg
LBV Hub Seminars
21 Feb 2025 - 21 Feb 2026

CMI Level 5 Management and Leadership Course

Preston Campus, Preston , PR1 2HE

09:00 - 17:00

CMI Level 5 Project Management Course
UCLanAerialCampus.jpg.jpg
LBV Hub Seminars
21 Feb 2025 - 21 Feb 2026

CMI Level 5 Project Management Course

Preston Campus, Preston, PR1 2HE

08:00 - 17:00

Chamber Breakfast Networking – July
Chamber Logo1.png.png
LBV Hub Networking
02 Jul 2025 - 02 Jul 2025

Chamber Breakfast Networking – July

St John's Hospice, Slyne Road, Lancaster, LA2 6ST

08:00 - 10:00

The Marketing Metrics that Matter – July 4
LBV Hub Seminars
04 Jul 2025 - 04 Jul 2025

The Marketing Metrics that Matter – July 4

Door4 Office, Burnley Wharf, Burnley, BB11 1JG

08:30 - 11:00

Tri-Site Survey Equipment Showcase
unnamed (2).jpg.jpg
LBV Hub Seminars
09 Jul 2025 - 09 Jul 2025

Tri-Site Survey Equipment Showcase

Crow Wood Hotel, Burnley, BB12 0RT

09:30 - 16:00

Chamber Summer BBQ
LBV Hub Social
17 Jul 2025 - 17 Jul 2025

Chamber Summer BBQ

The Borough, Dalton Square, Lancaster, LA1 1PP

17:30 - 20:00

Preston Tech Connection: Web3 is Dead. Or is It?
July Longer Banner.jpg.jpg
LBV Hub Networking
29 Jul 2025 - 29 Jul 2025

Preston Tech Connection: Web3 is Dead. Or is It?

Society1, Coworking Space, Preston, PR1 3LT

18:00 - 19:30

Preston Freelancer Meet-Up: July
Longer July Banner.jpg.jpg
LBV Hub Networking
31 Jul 2025 - 31 Jul 2025

Preston Freelancer Meet-Up: July

Society1, Coworking Space, Preston, PR1 3LT

10:00 - 11:30

Cumbria Business Expo 2025
https---cdn.evbuc.com-images-880461633-4862066883-1-original.20241022-110415.jpeg.jpg
LBV Hub Exhibitions
19 Sep 2025 - 19 Sep 2025

Cumbria Business Expo 2025

Carlisle Racecourse, Carlisle, CA2 4TS

09:00 - 15:00

North West Business Expo 2025
https---cdn.evbuc.com-images-880456273-4862066883-1-original.20241022-105445.jpeg.jpg
LBV Hub Exhibitions
24 Oct 2025 - 24 Oct 2025

North West Business Expo 2025

Bolton Stadium Hotel, Bolton, BL6 6SF

09:00 - 15:00

Advertise with us

Reaching 50,000 members, our print, digital and event platforms offer a fantastic way to raise your business profile and help you grow.

Find out more LBV122 Online Graphic
Subscribe now

Weekly news bulletin