Published: 22/04/2021 By Jane PriceThe answer to this question is Yes!
Many thousands of businesses have applied for and been approved to receive the various coronavirus loans available to help trade through the coronavirus pandemic.
When applying for these loans, companies would have needed to detail on application how the money would be used to benefit the company in order to prove its eligibility. But what would happen after receiving the loan if the company were to become insolvent?
The first step would be to get advice from a licensed Insolvency Practitioner (IP). They have a duty to give the best advice to you in your capacity as a director. It is important to understand what possible action could be taken against you personally should the company end up in an insolvency process.
If a company director were to voluntarily place a company into an insolvency process, without paying back the coronavirus loan(s) they could potentially face problems. It is worth noting that the IP’s first priority is always to act in the best interests of all creditors. Even if the director(s) themselves instructed the IP to act for them in the first place. Creditors remain the IP’s first priority.
The IP would be required to file a detailed report with the Insolvency service to examine how the company found itself in financial difficulties and what the director(s) did in response to the financial difficulties to try and resolve the situation. If the report were to find that the Bounce Back loan(s) were taken to prop up an already failing business, or not used as stated on the loan application it could result in the company director(s) being personally liable. Directors could be prosecuted for wrongful or fraudulent trading.
So what should directors do to protect themselves?
- Document why you needed to take the loan in the first place
- If you used the loan for other purposes than planned, you must document why you decided to do this
- If the loan was used to repay director’s renumeration, ensure that this is supported by an entitlement to be paid
- Take legal advice if you are unsure.
There are many excellent practitioners out there to support businesses in the accountancy, legal and insolvency sectors but if you need further bespoke advice please get in touch with us. The sooner you get help the more options open to you.
Call us for a free initial chat with no obligations to go ahead with anything, let us go through your options, call 020 8661 7878 or email email@example.com
Listen to our recent webinar where we talk in detail about bounce back loans.