The Creditors Voluntary Liquidation (CVL) process offers struggling business owners a way to formally close down an insolvent company. But what happens when the company has an outstanding Bounce Back Loan (BBL)? This question is increasingly common for directors facing financial challenges after taking advantage of pandemic-era government support. Understanding how BBLs are treated in a CVL is essential for anyone considering liquidation.
What Is a Creditors’ Voluntary Liquidation?
A creditors’ voluntary liquidation is a formal insolvency process initiated by company directors when the business can no longer meet its financial obligations. It allows for:
- An orderly wind-down of company affairs
- Appointment of a licensed insolvency practitioner
- Sale of assets to repay creditors, where possible
- Legal dissolution of the company
A CVL is often preferred over forced liquidation because it gives directors more control and may help preserve their professional reputation.
Bounce Back Loans: A Quick Recap
The Bounce Back Loan Scheme (BBLS) was introduced in 2020 to help small businesses survive the financial impact of COVID-19. These loans:
- Offered up to £50,000 based on a company’s turnover
- 100% backed by the UK government
- Had a 12-month repayment holiday and low interest rates thereafter
Although government-backed, bounce-back loans are still business debts. This means the responsibility lies with the company—not with the individual director—unless misconduct is involved.
Is a Bounce Back Loan Included in a CVL?
Yes. If a company has an outstanding bounce-back loan when entering a CVL, that loan is treated like any other unsecured debt. It is listed in the liquidation documents and included in the company’s total liabilities.
What Happens Next?
- The insolvency practitioner notifies the lender of the liquidation.
- The lender claims the guaranteed amount from the government.
- The debt is written off when the company is dissolved.
- The director is not personally responsible if the funds were used appropriately.
When Can a Director Be Held Personally Liable?
While bounce-back loans are not personally guaranteed, there are exceptions if the director:
- Falsely declared company turnover to obtain a higher loan
- Used the loan for personal expenses instead of business needs
- Continued trading while knowingly insolvent
- Transferred assets out of the company before liquidation
In these situations, the insolvency practitioner must report the misconduct to the Insolvency Service. This can result in:
- Personal liability for repayment of the loan
- Director disqualification (up to 15 years)
- Potential civil or criminal proceedings in severe cases
Director Conduct Review in CVL
Every CVL includes a standard review of the director’s conduct in the period leading up to insolvency. This includes a close examination of bounce-back loan use. The insolvency practitioner will assess:
- Bank statements and spending patterns
- Business records and financial statements
- Whether funds were used in line with the loan terms
Transparency and proper documentation can help directors demonstrate they acted reasonably and lawfully.
How to Prepare for Liquidation With BBL Debt
If your company is insolvent and has bounce-back loan debt, here’s what you should do before initiating liquidation:
- Speak to a licensed insolvency practitioner for a professional assessment.
- Stop trading immediately if you’re insolvent to avoid worsening the company’s financial position.
- Keep accurate financial records, especially detailing how the loan was spent.
- Avoid paying one creditor over others, as this may be seen as a preference.
- Do not dispose of business assets without professional guidance.
Key Benefits of a CVL With Bounce Back Loan Debt
- Debt relief: All unsecured business debts, including bounce-back loans, are written off.
- Avoids court action: Voluntary liquidation is a structured process that prevents creditor petitions.
- Professional oversight: An insolvency practitioner ensures fairness and legal compliance.
- Clean closure: Directors can move on, provided no misconduct is found.
Final Thoughts
Entering a creditors’ voluntary liquidation is a serious step, but when done properly, it can offer directors a responsible way to close an insolvent company and address bounce-back loan debt. As long as the loan was used appropriately for business purposes, directors are not personally liable, and the debt will be dealt with in the liquidation.
However, misuse of bounce back loan fraud can lead to investigations and serious consequences. If you’re unsure about your company’s status or how your bounce-back loan was managed, it’s crucial to consult a licensed insolvency practitioner. Early advice leads to better outcomes—for you, your creditors, and your future business prospects.