Personal Liability on Bounce Back Loans

The bounce back loan scheme seems to have been the saviour of a lot of small businesses, with more than £14 billion borrowed under the scheme since its launch on 4th May. These loans are interest free for the first 12 months, and do not carry a personal guarantee for the directors. This all seems positive up to now.

However, there is a false assumption that if the company subsequently enters into a formal insolvency process, then there can be no liability on the directors.

This will NOT be the case if the directors have acted improperly and breached their fiduciary duties or abused the scheme.

Directors need to remain conscious of potential misconduct charges and preferential payments under the Insolvency Act and Companies Act.

A typical scenario may be where the bounce back loan is used to repay other company debts which may have personal guarantees attached. If this happens, and the company then goes into liquidation, then the insolvency practitioner would challenge this act, and pursue the directors personally as a preferential payment.

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