On March 23rd 2020, the first Covid lockdown in the UK was announced by the Government, and soon after a host of Government support schemes were introduced, including the Bounce Back Loan scheme. Many companies are still paying off BBLs, whilst others have been liquidated with an outstanding BBL balance. In addition, many directors who fraudulently took out a BBL or incorrectly used a BBL have been investigated, resulting in a range of prosecutions.
In this article we look at:
- Some up-to-date figures relating to Bounce Back Loans
- Who is liable for an unpaid BBL?
- What happens if a company is struggling to repay its BBL?
- Can BBLs be written off?
Some up-to-date figures relating to BBLs
- The Department for Business, Energy & Industrial Strategy launched the BBL Scheme on 4 May 2020, offering loans of up to £50,000, or a maximum of 25% of annual turnover, to support businesses during the pandemic.
- c.1.4 million businesses drew down over £46 billion in Bounce Back loans.
- As of December 2024, c.70% of BBLs by volume were fully repaid or on schedule to be repaid. c.4.7% of loans were in arrears and nearly 1% were defaulted. Most of the remainder – c.23.7% – have been settled through the Government Guarantee, due to liquidation, severe financial hardship and even fraud where there is no chance of repayment at all.
- The Government reports that lenders have flagged that c.£1.9 billion worth of BBLs was drawn down fraudulently.
These figures tell us, therefore that c.29.7% of businesses who took out a BBL are either now in arrears, in default or have had their outstanding loans settled by the Government’s Guarantee (mainly following liquidations). This comes to over 400,000 businesses for whom the BBL was not enough to overcome their difficulties, with the exception of the fraudulent and misuse cases.
As Elaine Wilkins, director at our Bournemouth office says:
“We continue to come across many businesses who are in financial difficulties and are working hard to pay back their legitimate Bounce Back Loans. Inevitably, for some, they reach a stage where they can’t, and it is at this point that we strongly advise directors in such a position not to ‘put their heads in the sand’ but to seek advice early and to try to deal with the situation in an open and transparent way. This may include business turnaround advice, or a formal turnaround procedure such as Administration or a Company Voluntary Arrangement, with Liquidation being the last resort.”
Who is liable for an unpaid BBL?
Directors of a company that has been liquidated with an outstanding Bounce Back Loan are generally not personally liable for the loan, as these loans were backed by a Government Guarantee and did not require personal guarantees from the directors.
If, therefore, a company is insolvent and cannot repay its debts, including the Bounce Back Loan, it can be closed through a formal liquidation process, such as a Creditors’ Voluntary Liquidation (CVL). In this case, the loan is written off, and directors are not held personally responsible unless fraud or misconduct is proven.
However, there are exceptions:
- Fraud or Misconduct: If the Bounce Back Loan was obtained or used fraudulently, directors can face legal consequences, including personal liability for the loan, director disqualification, or even criminal charges.
Over 800 company directors have been disqualified for abusing the Bounce Back Loan (BBL) scheme during the 2023-2024 period, with the process continuing to the present day. The Insolvency Service has also pursued criminal charges in cases of fraud, with convictions leading to prison sentences and other penalties.
- Investigations: Liquidators may investigate the use of Bounce Back Loans during the liquidation process. If misuse is identified, directors could face civil recovery proceedings or other penalties.
What happens if a Company is struggling to repay its BBL?
The Government accepted that some companies who legitimately took out a BBL and used it correctly will be facing difficulties in repaying these loans and introduced a Pay as You Grow (PAYG) scheme to try and combat some of these challenges.
The PAYG scheme was introduced as part of the Winter Economy Plan and is designed to help companies who have started to repay their Bounce Back Loans but are having difficulty in meeting the monthly repayments. There are three main lifelines offered to companies through the PAYG scheme:
- Bounce Back Loans can be extended from six years up to 10 years with the interest rate remaining fixed at 2.5%. Lengthening the term of the loan will make monthly repayments lower but you will pay more interest overall.
- A six-month payment holiday can be taken, meaning no repayments will be due during this time. This option can be taken only once over the term of the loan.
- Borrowers can opt to pay just the interest on their loan for a period of six months. This will lower the monthly repayment amount for those months. This option can be taken three times over the course of the loan.
Can Bounce Back Loans be written off?
Bounce Back Loans cannot be written off while a company is still active and trading, The only way a Bounce Back Loan will be written off is if the company becomes insolvent and subsequently enters liquidation (usually through a Creditors’ Voluntary Liquidation) and no evidence of a fraudulent application or misuse of the loan is uncovered by the Liquidator.
If any such abuse of the BBL system is uncovered, and directors are to avoid the possibility of compensation orders, director disqualification and even a criminal prosecution, they need to take formal advice, which will normally require the repayment of the BBL on terms to be agreed.
If you need our help and advice in any of our specialist insolvency areas, please contact us or call any of our offices, below, for a FREE initial discussion on the phone or over a coffee, with one of our Licensed Insolvency Practitioners.
Also, K&W Recovery, trading as Antony Batty and Company, Thames Valley:
