Reply to: Ltd furlough..not affected by virus?

[Lance]

I wouldn't trust anything that is written. In the end they can always use retrospective powers and change the loans so these actually are being guaranteed personally by directors and then drain accounts and confiscate property.
The latter, in my opinion, could likely happen if Labour was in charge as they hate entrepreneurs.

inneresting

[Lance]

It's an enormous leap from this...

take a BBL today and close their company tomorrow and walk away without any risk of a misfeasance claim.

to this

Alternatively, you do accept that a director must act reasonably, in relation to their legislated responsibilities, and then it becomes a question of whether they have acted reasonably, based on the facts, which the insolvency practitioner is required to assess. As a company directory, you have a duty of care to the company and its creditors, as well as the tax payer.

all of this is true. And still compatible with taking a BBL.

[elsergiovolador]

I wouldn't trust anything that is written. In the end they can always use retrospective powers and change the loans so these actually are being guaranteed personally by directors and then drain accounts and confiscate property.
The latter, in my opinion, could likely happen if Labour was in charge as they hate entrepreneurs.

[jamesbrown]

how on earth does 'get a permie job to bankroll your company fit into fiduciary responsibilities'?
It doesn't.

So, according to you, someone can take a BBL today and close their company tomorrow and walk away without any risk of a misfeasance claim. Good luck with that. Alternatively, you do accept that a director must act reasonably, in relation to their legislated responsibilities, and then it becomes a question of whether they have acted reasonably, based on the facts, which the insolvency practitioner is required to assess. As a company directory, you have a duty of care to the company and its creditors, as well as the tax payer.

[Old Greg]

Interesting article here: Warning for company directors over ‘bounce back’ loans - Liverpool Chamber of Commerce

The experts at Begbies Traynor are here to provide comprehensive help, support..



Small firms have borrowed more than £14bn under the scheme since it was launched on 4 May 2020.
Businesses can borrow up to 25% of their turnover up to a maximum of £50,000. The loans are interest free for the first twelve months and are underwritten by the UK Government.


Company directors don’t need to provide a personal guarantee and the loans should be used to help firms to survive. However, some company directors have considered using the scheme to repay themselves or personal debts.


There is a false assumption that if the company is unable to recover from the impact of Covid-19 and subsequently enters into a formal insolvency process, then responsibility for repaying the loan will remain solely with the company and liability would not be transferred to directors.


However, this will not be the case if directors have acted improperly and breached their fiduciary duties or abused the loan scheme. While wrongful trading provisions have been temporarily suspended in response to the Covid-19 outbreak, other provisions of the Insolvency Act and Companies Act remain in full force and operation.


Directors need to be mindful of potential misconduct and the issue of ‘preference payments’. Bounce back loans can be used to refinance existing liabilities, but great caution needs to be exercised.


A typical scenario is where company debt includes some that is personally guaranteed or personally owed to directors or their associates. If a director chooses to only repay pay debts with a personal link, leaving unsecured creditors unpaid, this would be an act of misfeasance through the making of a preference. An appointed licenced insolvency practitioner would challenge this and it could lead to personal liability for repayment.


If company directors intend to use bounce back loans to repay existing debt, they should remove the risk of inadvertently falling foul of the rules surrounding preference payments. Getting professional advice now adds a layer of protection in the unfortunate event the company subsequently becomes insolvent.

[jamesbrown]

I didn't read Lance's post like that.

If the OP thinks they still have a viable business but need to borrow to pay taxes and salaries due to a temporary lack of income, with all intention of paying it back, then why the heck not. If the money runs out and they realise that they no longer have a viable business then it becomes another sad statistic of businesses that failed.

That's not an immoral stance, that's normal business.

Nonsense. To quote lance.

Then if you still cannot find work, close the company and get a permie job.

It is not normal business to walk away from a debt without a reasonable attempt to pay it back. Why do you need to close the company when you get a permie job? That is clearly implied. Why can you not continue to pay the money back via a director's loan from the money you earn as a permie? Of course you can. Choosing not to is a choice. A bad one.

[Lance]

I didn't read Lance's post like that.

If the OP thinks they still have a viable business but need to borrow to pay taxes and salaries due to a temporary lack of income, with all intention of paying it back, then why the heck not. If the money runs out and they realise that they no longer have a viable business then it becomes another sad statistic of businesses that failed.

That's not an immoral stance, that's normal business.

yes. this.

[Lance]

Why are you putting the moral question to one side? For convenience, because it doesn't sit with your bad advice?

Has the business owner acted properly, in keeping with their legislated responsibilities? That is the question.

The idea that you can secure a loan without a reasonable plan to pay it back is incorrect. I think you're forgetting the basics here. Your advice to the OP almost reads like "take a BBL and then close the company if you can't find work", which is simply bad advice. There is no need to close the company as insolvent and there will be consequences if you do. Taking a permie role and providing a director's loan (possibly renegotiating the terms of the loan first) would be the best way to go if you cannot find contract work. The mooted "student loan" style arrangement fits with this.

how on earth does 'get a permie job to bankroll your company fit into fiduciary responsibilities'?
It doesn't.

You're wrong on this. It might be immoral but it is PRECISELY the point of the bounce back loan.
Taking a BBL to bankroll the company is the correct, government approved, and encouraged way to do this. The reason the government has backed the loans is the banks aren't that stupid.

Most companies who take a BBL are going to go bust, contractors or not. Either fairly quickly, or months later as they realise their business could never sustain a £50k debt under normal operations.

[ladymuck]

I didn't read Lance's post like that.

If the OP thinks they still have a viable business but need to borrow to pay taxes and salaries due to a temporary lack of income, with all intention of paying it back, then why the heck not. If the money runs out and they realise that they no longer have a viable business then it becomes another sad statistic of businesses that failed.

That's not an immoral stance, that's normal business.

[jamesbrown]

putting the moral question to one side..... It is a loan to a limited liability company. Pursuing the directors if they have acted correctly isn't possible. And the bank are only going to chase the government once the company has gone.
Take the loan, pay your tax, salary and expenses and if the business fails it fails. It won't be the last one. If it doesn't fail then the money will need to be paid back under the terms of the loan.

This is really simple. It's how a business is run. We spend an awful lot of time on here telling people to think like a business but still forget the basics.

Why are you putting the moral question to one side? For convenience, because it doesn't sit with your bad advice?

Has the business owner acted properly, in keeping with their legislated responsibilities? That is the question.

The idea that you can secure a loan without a reasonable plan to pay it back is incorrect. I think you're forgetting the basics here. Your advice to the OP almost reads like "take a BBL and then close the company if you can't find work", which is simply bad advice. There is no need to close the company as insolvent and there will be consequences if you do. Taking a permie role and providing a director's loan (possibly renegotiating the terms of the loan first) would be the best way to go if you cannot find contract work. The mooted "student loan" style arrangement fits with this.

[Lance]

Sure about what?

This is a loan. It is not free money. It will not be a voluntary liquidation. The creditors will pursue the debt and might even try to pursue the directors. Sure, banks may be loath to pursue small business owners aggressively in the current circumstances, but a debt is a debt. You cannot simply walk away from it without consequences, neither should you.

putting the moral question to one side..... It is a loan to a limited liability company. Pursuing the directors if they have acted correctly isn't possible. And the bank are only going to chase the government once the company has gone.
Take the loan, pay your tax, salary and expenses and if the business fails it fails. It won't be the last one. If it doesn't fail then the money will need to be paid back under the terms of the loan.

This is really simple. It's how a business is run. We spend an awful lot of time on here telling people to think like a business but still forget the basics.

[Old Greg]

They may say that they wil try and recover them from you, but they will still need to follow insolvency rules.

From Bounce Back Loan: Understanding personal liability and alternative funding options


"Bounce Back Loans and Personal Guarantees: Understanding your liability

The government is providing 100% security to the banks for loans taken out under the BBLS, however, it is the responsibility of the business to pay back the loan once monthly repayments begin following the initial 12-month grace period.

As the government is providing the banks security for the full loan amount, this means that company directors will not need to provide a personal guarantee to underwrite the borrowing.

Not having to provide a personal guarantee becomes extremely valuable if the company is unable to recover from the impact of Covid-19, or otherwise finds itself in financial distress at a later date. If the company becomes insolvent and subsequently enters a formal insolvency procedure, such as Creditors’ Voluntary Liquidation, then responsibility for repaying the Bounce Back Loan will remain solely with the company and liability cannot and will not be transferred to directors or other shareholders provided they comply with their statutory and fiduciary duties as a director. This means there is no risk to a director’s personal assets or individual credit rating should their company not be in a position to repay the loan."

Directors have to exercise some level of caution.

Can company liquidation affect my personal credit rating?

Director responsibilities

As a director, you are bound by certain responsibilities and must always act for the good of the company. Directors of limited companies have little risk (or limited liability) of falling foul of company debts if the business fails. However, you must have acted properly – in accordance with the Companies Act 2006 along with the Insolvency Act 1986.


If you do not act appropriately, or fail to act reasonably and keep proper accounts and records, you may face director’s liabilities. Furthermore, if you continue to take credit knowing the company does not have the resources to make repayments, you are at huge risk of personal liabilities for the company debts. This action is regarded as wrongful trading and, if proven, can put you at very personal risk. More information can be found on wrongful trading here. In short to avoid being accused of wrongful trading you should take steps to deal with the company’s insolvency when it is clear there is no chance of recovery.


If you continue to rack up debt when you have already determined the company will be entering liquidation, it may be classed as fraudulent trading. If found guilty, you could even face imprisonment.

[mjcp]

On the HSBC BBL page they do state that they will try to recover the funds from you but if they cannot, the government provides a full guarantee.

They may say that they wil try and recover them from you, but they will still need to follow insolvency rules.

From Bounce Back Loan: Understanding personal liability and alternative funding options


"Bounce Back Loans and Personal Guarantees: Understanding your liability

The government is providing 100% security to the banks for loans taken out under the BBLS, however, it is the responsibility of the business to pay back the loan once monthly repayments begin following the initial 12-month grace period.

As the government is providing the banks security for the full loan amount, this means that company directors will not need to provide a personal guarantee to underwrite the borrowing.

Not having to provide a personal guarantee becomes extremely valuable if the company is unable to recover from the impact of Covid-19, or otherwise finds itself in financial distress at a later date. If the company becomes insolvent and subsequently enters a formal insolvency procedure, such as Creditors’ Voluntary Liquidation, then responsibility for repaying the Bounce Back Loan will remain solely with the company and liability cannot and will not be transferred to directors or other shareholders provided they comply with their statutory and fiduciary duties as a director. This means there is no risk to a director’s personal assets or individual credit rating should their company not be in a position to repay the loan."

[WordIsBond]

FWIW, BBC is reporting today that the banks are trying to push the recovery issue off onto the government.


Banks urge 'student loans style' plan to avoid job cuts - BBC News

[ladymuck]

On the HSBC BBL page they do state that they will try to recover the funds from you but if they cannot, the government provides a full guarantee.
https://www.business.hsbc.uk/-/media...-factsheet.pdf

I suspect this will be the same for all banks as they are all following the same scheme guidelines.

I wouldn't advocate taking the loan and running off with the money but it's not wrong to try to keep the company afloat using the means available before giving up and liquidating.