What is a CBILS Loan?

Monies received from a CIBLS loan must be used for the general running costs of the business.

This means to pay rent and business rates as well as general business costs and overheads. The monies are allowed to be used to refinance existing business lending to reduce the associated interest costs.

The funds are allowed to be used to pay staff wages including Directors salary, but the funds are not to be used to pay dividends or transferred to a personal savings account. The result of doing this could have a serious impact on the Directors of the company who could be made personally liable if the company enters into voluntary or compulsory liquidation.

Reports have suggested that almost half of the emergency loans which the Government has provided during this pandemic, may never be repaid, which would cause a debt of £26bn to the UK Treasury.

There have been a number of non-viable companies that have applied for the CBILS loans and certain criteria for these lends were made more lenient by the government. Provided you have acted responsibly as a Director in the way these funds have been used, then this will not cause too many issues.

The pandemic has caused untold business disruption and due to levels of uncertainty and damage to businesses this has left many unable to meet the monthly loan repayments. Most business expected a  short disruption to their business in the knowledge that once they return to full productivity, and the time the repayments fall due, they will be experiencing normal trade volumes and can therefore meet the repayments. However, most did not anticipate another year of restrictions and this has left many businesses unable to survive.

One point of consideration for loans below the value of £250,000 you can be held personally liable for the debt and the ‘’veil of incorporation’’ can be lifted on your limited company if you have acted unreasonably.

As a result of the pandemic, your business may be insolvent. If you are facing issues and are unable to pay back this emergency loan, then it is important you seek professional advice as soon as possible from a Licensed Insolvency Practitioner.

As detailed earlier in this section, CBILS loans under £250,000 don’t require any security or guarantee, however, some lenders still seek guarantees despite the government amendments to the loan scheme as a whole.

If the company is no longer viable, however, liquidation may be the only outcome. Outstanding debts remaining after the sale of assets and distribution of funds in liquidation are written off with the winding down of the company. If you have provided some form of security such as a personal guarantee for a CBILS loan, you need to carefully check the terms you agreed. The lender may have made a demand that’s not in line with government guidelines for the loan scheme, in which case you could potentially be personally liable for part of the loan.

One of the areas that will be investigated by a liquidator is how the Bounce Back Loan was used inside your business.

If funds were not used for the normal trading of the business such as purchasing stock or paying business overheads then company directors could be made personally liable for the Bounce Back Loan as this would be classed as misfeasance.

Similarly, if you used the monies to repay a previous loan that had a personal guarantee attached to it, this could be seen as a preference and a direct attempt to remove the personal liability risk of the previous loan.

If the company is or becomes insolvent, you are legally obliged to act in the best interests of the creditors at all times. If you have made repayments to some creditors and not others then this can be seen as ‘preferential payments’ that could lead to you being made personally liable for the company’s debts.

Furthermore, if Bounce Back Loan monies have been taken from the business and used for personal benefit, this would also be an area r risk and something a liquidator would look to recover. The Insolvency Service is taking a very dim view on these methods and unless monies are repaid then they will seek to take disqualification proceedings against Directors.

In summary, providing the Bounce Back Loan monies have been used correctly and for the purposes intended then you will not have issues should you seek to place the company into liquidation.