With many companies still experiencing the repercussions of the Covid-19 pandemic, and the rising issues caused by the cost of living crisis, many directors are finding that Bounce Back Loans were not enough to sustain their business.
Some directors are looking for a quick solution, such as striking off their company. However, this isn’t really a viable option for many and it can result in more issues than what you started with.
What does it mean to strike off a company?
“Striking off” a company is a process known as company dissolution, which is a method used to close a company and formally remove it from the Companies House registrar.
Once the company has been struck off the registrar, the business is no longer legally or publicly acknowledged and is officially a dissolved company.
Companies can be dissolved if:
- It is dormant (no longer trading).
- It was a subsidiary company which is no longer needed.
- The directors want to retire and no one will take over the company.
Can you strike off a company with a Bounce Back Loan?
Whilst you can try to strike off a company with a Bounce Back Loan (BBL), it is generally not recommended as you will likely be met with objections, even if you do satisfy the relevant criteria.
If you try to strike off your company with existing debt, you will receive a letter known as the “Objection to Company Strike Off Notice”. These letters are a signifier that Companies House has noticed the fact that the company still has debts, and your chosen course of action is being questioned.
In the case of BBLs, objections will usually come from the finance provider who the BBL is owed to. Although HMRC guarantees these loans, the responsibility for chasing the loans remains with banks.
Any form of strike off action by a director must also conform with the statutory requirements to inform creditors. So, if you attempt to dissolve your company whilst you still have a BBL, you will likely see some objections coming from your creditors.
What will happen to a Bounce Back Loan if a company is struck off?
If you have received objections from the original lender, HMRC and your creditors, they will all follow a set process which has to be followed by all parties to ensure there has been no fraudulent activities. In some cases, this can involve debt collection agencies doing checks too.
If the BBL was used in the way that it was intended, which was to support the company, then there will likely be no issues with the dissolution.
The bank lenders will also have to show that they have done everything they can to collect the money owed before they can claim on the government guarantee.
If no wrongdoing is found and the banks are able to claim on the government guarantee, your BBL will be treated as an unsecured debt and will be written off.
What is the criteria for striking off a company?
For a voluntary dissolution to begin, your company must meet certain criteria.
You can apply to strike off your company, but only if:
- Your company has not traded or changed names in the last 3 months
- Your company is not threatened with Liquidation
- Your company has no agreements with creditors, such as a Company Voluntary Agreement
If your company does not meet these conditions, you will have to voluntarily liquidate your company instead.
Will a request to strike off a company be objected to if the company has a Bounce Back Loan?
Yes, as we’ve mentioned, you will likely receive an Objection to Company Strike Off Notice from Companies House if you try to strike off a company with a Bounce Back Loan.
You may also receive objections from HMRC, your lender and your creditors.
To prevent any objections from creditors, you should ensure that they are informed that you are looking to dissolve the company and explain your financial position. You should also invite the creditors to petition for the winding up of the company.
You will also need to make sure that you inform all shareholders, directors, employees and trustees of any pension funds.
Once you have addressed your statutory duties of informing your creditors of the financial position, and you have reported the issue to the Registrar of Companies, you cannot then later be personally fined by the Registrar for later failure to deliver annual returns or accounts.
Bounce Back Loan support for Limited Companies
If you are looking to dissolve your company, but you’re not sure what the best course of action is to take, speak to our friendly and expert team for specialist advice.
Our team at The Insolvency Experts can provide you with BBL advice and guidance, which can be tailored to your specific and unique needs.
Contact us online or speak to our specialists directly by calling us on 0300 303 8284.