Bounce Back Loans – The Small Print
After the Bounce Back Loan scheme was launched on 4 May 2020, recent figures show that more £14 billion has been borrowed by businesses needing assistance during the Coronavirus pandemic. Whilst the scheme is fully backed by the government and requires no repayment for 12 months, there are still implications businesses should consider in the event they cannot afford to repay.
Whilst business lenders usually require personal guarantees for loan security, the government has prevented lenders for the scheme requesting personal guarantees for these loans at present. Repayment resting with the company alone is of course a key feature should the business decline and become unable to pay back the loan in the future.
However, there are still instances where directors can be held liable for repayment of a Bounce Back Loan, so it is crucial to understand and be aware of the circumstances in which this might happen. Although wrongful trading provisions have been set aside for the moment, directors must not take advantage of the current Coronavirus situation or breach their fiduciary duties under law. Both the Insolvency Act and Companies Act are considered to be still in as full effect as ever.
Companies are encouraged to use the Bounce Back Scheme to help their businesses survive, and are entitled to use the loans to refinance any existing liabilities. Caution must still be exercised however and the Scheme must not be abused. Particular attention should be given to any “preference” payments made with the Bounce Back Loan. For example, only paying off company liabilities which are guaranteed personally – whilst other liabilities go unpaid – would be a clear breach of the director’s duties, and personal repayment could be enforced under law.
Company directors should take great care not to take dangerous mis-steps in these unique circumstances, whether intentional or not. Legal advice is of course recommended to ensure you remain compliant with the rules and regulations whilst keeping your business afloat.
The Corporate and Commercial team at O’Donnell Solicitors, headed by Director James O’Donnell has the expertise to advise on all your business’ needs, particularly at this challenging time. We can be contacted at 01457 761 320, our Head Office at Appleby’s Business Centre, 3 Mossley Road, Grasscroft, OL4 4HH or via email firstname.lastname@example.org.