At the height of the coronavirus pandemic, the UK government introduced several support schemes to help companies stay afloat during the pandemic’s initial wave. Since March 2020, issues have continued to blight the UK economy, including inflation, knock-on effects from other global issues, and a drop in spending due to the cost-of-living crisis. All these have made things harder for companies if they’re already struggling to repay what they borrowed, with some even risking insolvency.
A reminder of support for companies struggling with coronavirus-related debt
Initially, the UK government offered the Coronavirus Business Interruption Loan Scheme (CBILS), wherein companies could borrow up to £250,000, with interest paid and 80 per cent government backing for the first 12 months.
Issues that some companies had acquiring funds from CBILS without personal guarantees saw the introduction of the Bounce Back Loan Scheme (BBLS). This removed the need for personal guarantees and allowed struggling companies to borrow up to £50,000.
Additionally, the furlough scheme paid employees 80 per cent of their salary if they couldn’t work due to social distancing and they couldn’t work from home. The Self-Employment Income Support Scheme (SEISS) provided similar support for self-employed sole traders.
While these schemes supported many businesses during the pandemic and prevented some from closing, they are no longer open to new applicants, and those who received funds now have to repay.
How covid-related debts could still affect your company
You’d be forgiven for thinking that coronavirus-related debts can’t affect a company if it’s still operating years after the worst of the pandemic. Surely, those companies worst affected by the pandemic will have closed at its height?
Covid had a marked effect on the UK economy, and many companies that were viable before the pandemic might not be now. Coupled with the cost-of-living crisis and other economic pressures surrounding Brexit, and your company’s liability to repay any outstanding Bounce Back Loans means it may struggle to cover its outgoings.
What you can do if your company is still struggling with coronavirus-related debts
If you can’t repay your company’s Bounce Back Loan, there may be a number of options to alleviate the debts, and which ones are suitable depends on your company’s circumstances.
While you can attempt to dissolve the company by striking it off from Companies House, this is not a process meant for insolvent companies. Creditors are notified and may object once the strike-off is advertised in the London Gazette. Additionally, creditors can restore the company if they have a valid reason for up to six years after the date of dissolution.
If you’re struggling to repay your company’s Bounce Back Loan, contact a licensed insolvency practitioner for regulated advice tailored to your company’s circumstances. In insolvency, a Bounce Back Loan is classed as unsecured debt, which can be included in formal insolvency procedures.
As long as you haven’t misused your company’s Bounce Back Loan for means outside of what it was intended for, you shouldn’t be held personally liable for the owed amount.
Repayment of the company’s unsecured debts through a Company Voluntary Arrangement (CVA) may be possible if the company has a viable business model, but its debts are holding it back. A CVA allows the company to continue trading for the arrangement’s duration, and once it concludes, any remaining unsecured debt is written off.
If creditor pressure is a significant problem and your company would benefit from restructuring, administration might be a better option. During this, an insolvency practitioner takes control of the company and makes the changes necessary to return it to a viable state. Administration works best when the company can be rescued as a going concern, or it has sufficient assets to make a distribution and achieve better results than it would without entering administration.
If recovery isn’t feasible due to insurmountable debts, or you’ve decided you don’t want to run the company anymore, the insolvency practitioner can liquidate the company through a Creditors Voluntary Liquidation (CVL). Liquidation protects the company from further legal action from creditors, drawing a line under the insolvency, allowing you to start afresh, and potentially offering a better outcome for the creditors than if they were to wind the company up through compulsory liquidation.
In summary
While the numerous coronavirus support schemes, including CBILS and BBLS, helped keep companies afloat during the pandemic, the economic pressures that have arisen in the time since could lead to further financial woes.
If your company is struggling to repay its liabilities, take advice from a licensed and regulated insolvency practitioner. As highly qualified professionals, they will assess your circumstances and outline the solutions best for your company.
Dissolving a company is ill-advised if it has an outstanding Bounce Back Loan – creditors are likely to object. If the company has a viable business model, but its burdensome debts are hindering its chances of success, it could explore repaying in affordable amounts via a CVA. If restructuring the company would be more beneficial, then the company could explore administration. If recovery is unlikely, then putting the company into voluntary liquidation will often be better than having creditors force the company into compulsory liquidation.
Angela Spearman is a journalist at EzineMark who enjoys writing about the latest trending technology and business news.