What if a limited company doesn't survive pandemic even with BBL

[Deleted User]

PamOlo said:

What would happen if a Ltd company did fail even after getting the loan, would it be possible for the director to continue to pay the loan out of personal funds?

The limited company is a separate legal entity, if the company was liquidated then the debt dies with the company (unless there was wrongful trading). The director probably could not even pay the loan, as the loan would not be in their name and would be terminated once the company was closed down. Plus, why would they want to? To pay the loan after the company was closed down would defeat the point of being a limited liability company in the first place, they might as well just be a sole trader. 

Jeremy535897

PamOlo said:

What would happen if a Ltd company did fail even after getting the loan, would it be possible for the director to continue to pay the loan out of personal funds?

I can't see the banks turning it down. They could not compel the director to do so, unless there was fraud.

Galloglass

There have been some studies on the issue and the conclusion was that these loans should have been grants. Banks have two costs in lending: the first being the failure rate (covered by the government) and the second being the management costs. If these were simple grants, the overall cost would be less to the taxpayer - which is calculated to be quite low in relative government spending terms. 

Seems the Treasury actually know what they are doing.

Grumpy_chap

Galloglass said:

these loans should have been grants.  If these were simple grants, the overall cost would be less to the taxpayer 

I am not sure that entirely follows.  

At the moment the BBLS pays a sum of money only to those sole traders or businesses that apply for the funding, which is up to 25% of turnover and the cap at £50k.  As loans which are due to be paid back, the cost to the Government is the interest charge in the first year plus the cost of covering defaults.  We do not actually know what the interest charge has been agreed between the Government and the banks in the first year.

For defaulted loans, we can expect that there will be a fairly aggressive stance taken by the Government that requires the banks to exhaust all their normal processes first.  It is also likely that any default sums in the event of Ltd Co. failure will be treated as tax debts so the first creditor on any assets that the Ltd Co. has at the date of failure.  Furthermore, if the failure of the company looks like fraud, i.e. took the loan, paid the Director / Owner and then the business failed, you can be certain that the Government will pursue individuals and not allow then to hide behind the Ltd Co. screen.

IF this was a grant system, then it would amount to giving every company (or sole trader) in the country, irrespective of size, a payment of 25% turnover capped at £50k.  None of it would ever be paid back.  As loans, there are lots of eligible businesses that have not applied.  If it was a grant and the business was eligible, there would be no reason not to apply.  This increase in take up would make the scheme more expensive than the loan system.