Closing a company can be difficult at the best of times, and can be even harder with the addition of a Bounce Back Loan.
While some companies with a Bounce Back Loan look to dissolve their company, it is likely this will be blocked, leaving directors having to face formal insolvency.
What does it mean to dissolve a company?
Dissolving a company, or company dissolution, is a way of closing a company and removing it from the Companies House register.
Once the process is complete, the business is no longer legally and publicly recognised, and the company is officially dissolved.
Can bounce back loans be written off?
Companies themselves cannot write off a Bounce Back Loan (BBL). If you can still afford to pay your loan, but the current payments are causing issues with your cash flow, you can negotiate with your lender to utilise the Pay As You Grow (PAYG) scheme.
You can choose to extend your repayments from 6 to 10 years, or take repayment holidays under the PAYG scheme, but the loan will not be written off.
Can you dissolve a business with a Bounce Back Loan?
If you’ve realised your company is no longer viable, and you want to dissolve it, that is understandable. However, you will need to proceed in the correct way, and when you have a limited company with debt, dissolution is not appropriate.
Dissolution is only available for limited companies which have no debt, and which simply need to be struck off the Companies House register.
Companies which have debt must proceed under Voluntary Liquidation, which is the correct legal option.
Even if you attempt to dissolve your company with a BBL, it is likely it will be objected to, even if you satisfy the other requirements.
Do you have to pay back a Bounce Back Loan if the company is dissolved?
If a company has been dissolved despite the fact it still had debts from a BBL, HMRC can reinstate the company.
Once reinstated, directors may be held personally liable for the loan repayments, and may also face other repercussions from attempting to incorrectly dissolve the company.
Read more about BBLs, personal liability and how it works in our dedicated blog.
Can you strike off a company with a Bounce Back Loan?
Whether you can strike off your business or not would be subject to agreement of your creditors; however, as we’ve mentioned, you can only dissolve a company if it has no debt, making the company solvent.
If you cannot repay your BBL, or other loans, it is likely you have more serious financial problems, and so the only route to take is company closure through liquidation.
It’s important to be aware that if you strike off the company and your creditors have not agreed to this, then you could be causing serious problems for the future.
Creditors, such as HMRC, scan dissolutions and will be quick to take action if they believe one has occurred incorrectly. Your company will be reinstated and directors may face prosecution, including fines, imprisonment and personal liability.
Check out our dedicated blog on striking off a company with a Bounce Back Loan.
When can a limited company be dissolved?
A company can be dissolved if:
- It is no longer trading, or has not traded or sold stock in the last three months
- It is a subsidiary company, and is no longer needed
- The company name has not been changed in the past three months
- The directors are looking to retire and no one will take over
- It is not threatened by liquidation
If your company does not meet these requirements, you will have to voluntarily liquidate your company instead.
What happens if you dissolve a Limited Company with a Bounce Back Loan?
If you try to dissolve your company, despite having the existing BBL debt, you will receive a letter known as the ‘Objection to Company Strike Off Notice’.
The letters are indicative that Companies House has picked up on the fact that debts still remain and your chosen course of action is being questioned.
These objections are usually triggered by HMRC, who have officers monitoring directors attempting to avoid tax obligations through company dissolution.
Objections are likely to occur from the finance provider who is owed the BBL funds. Despite the fact that HMRC guaranteed these loans, the responsibility of chasing defaults falls on the banks who have been asked to use their normal debt protocols.
Will HMRC reinstate a dissolved company?
HMRC can reinstate a company if it’s been incorrectly struck off the Companies House register, and this can happen at any period in the future.
For directors who think striking off their business might provide a quick solution for company closure, you should be aware that there will be continuous uncertainty ahead unless the BBL debts are addressed before you attempt to dissolve the company.
How to close a company with an outstanding Bounce Back Loan
If you wish to close your company, but you still have the debt from a BBL, it is still possible to eradicate the debt and close the limited company.
The good news is that a BBL can be treated as any other unsecured debt, and you can liquidate your company through Creditors Voluntary Liquidation.
Our friendly team of experienced, licensed Insolvency Practitioners will work closely with you to get you on the right path.
Get in touch and see how we can help you today.