Coronavirus support schemes, including the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS), helped many companies in the United Kingdom stay afloat during the early stages of the pandemic. However, with continued economic turbulence and repayment now needed for many of these loans, those same companies might struggle to make those obligations, and may even become insolvent.
So, what can you do if your company can’t afford to repay its COVID support loans?
What support was available for companies struggling with coronavirus-related debts?
In the United Kingdom, the government rolled out several support schemes to help businesses affected by the then-newly emerging COVID-19.
These included the Coronavirus Business Interruption Loan Scheme (CBILS), which allowed companies to borrow up to £250,000 with 80 per cent government backing, with them also paying interest on the first 12 months.
The furlough scheme paid employees eighty per cent of their wages if restrictions left them unable to work, while the Self-Employment Income Support Scheme (SEISS) helped self-employed sole traders.
One of the most popular support options was the Bounce Back Loan Scheme (BBLS). This allowed companies to borrow up to £50,000 without any guarantees if the pandemic led to them losing funds. Many companies took out these loans as a lifeline to see them through the pandemic’s initial hardships, and they undoubtedly prevented many from going under.
Gradually, these schemes closed to new applicants, and those who received funds had to start repaying.
What if things have got worse?
While these support schemes were meant to help businesses recover from the pandemic’s hardships, and it has, undoubtedly, helped keep many afloat that would otherwise have failed, this cannot be said for all.
Markets and customer habits have changed in the aftermath of the pandemic, making once profitable businesses lose viability. Additionally, the UK economy has undergone uncertainty and turbulence since 2020 for reasons both related and unrelated to the pandemic.
Additional, Brexit-related rules and requirements have increased strains on some businesses, while rising interest rates, wholesale prices, the pound losing value, and other external disruptions have increased costs, all while the much-publicised cost of living crisis has led to customers cutting back on both disposable income and what they spend on essentials.
All the above mean companies could struggle to repay their Bounce Back Loans if their trade or outgoings have been affected.
What are your options if you can’t repay your support loans?
If your company can’t repay its Bounce Back Loan’s outstanding balance, you do have options to alleviate its debts.
You can try to strike the company off the register at Companies House, but as this is advertised in the London Gazette, creditors will be notified. They are likely to object to the attempted strike-off if they’re owed monies, and the company will receive an ‘Objection to Company Strike Off Notice’.
Even if the dissolution is successful, creditors can restore the company for up to six years afterwards, should they have a valid reason to do so.
Companies struggling to repay their Bounce Back Loans should instead contact a licensed insolvency practitioner to discuss their options. A Bounce Back Loan is an unsecured debt, so can be included in a formal insolvency procedure.
Both sole traders and businesses incorporated in limited companies can undergo insolvency proceedings, but here, we will concentrate on those designed for companies.
The company’s circumstances affect which insolvency procedure will suit it best.
- If the company has a viable business model but burdensome debts are hindering its ability to continue trading, it might be possible to repay the company’s unsecured debts in affordable monthly instalments while continuing to trade and maintain goodwill with customers. This can be achieved through a Company Voluntary Arrangement (CVA). The process usually lasts five years, and once the arrangement concludes, the remaining unsecured debt is written off.
- If the company has more substantial debts and is under mounting creditor pressure, with restructuring needed to return it to a profitable state, it might benefit from administration. This process involves an insolvency practitioner taking control of the company and making changes to return it to a profitable state. This may include selling off parts of the company to make it more appealing to potential buyers.
- Generally, administration is only considered if the company could be rescued as a going concern, it has enough property and/or assets to generate a distribution to creditors, and it would achieve better results for those creditors than if the company was liquidated without first undergoing administration.
- If the company’s debts are of such a level that recovery isn’t feasible, or the directors no longer want to run the business, they can voluntarily liquidate the company by applying for a Creditors Voluntary Liquidation (CVL). Entering liquidation protects the company from all further legal and creditor action, drawing a line under the company’s debts and allowing the directors to walk away and start afresh. Entering a voluntary liquidation is often preferable to having the company’s creditors force it into compulsory liquidation through a winding-up petition.
To conclude
If your company can’t repay its coronavirus support loans, you should speak to a licensed and regulated insolvency practitioner. They can assess your company’s situation and talk you through the options best for its circumstances. While you can try to dissolve a company with an outstanding Bounce Back Loan, your creditors are likely to object. Repaying in affordable instalments might be feasible if the company has a viable business model. Administration could be a viable option if the company could be restructured and returned to profitability. If, however, the company has little chance of recovering, you can voluntarily put it into liquidation before creditors force it to do so.