Bounce back loan

Jeremy535897

There is some guidance here:
https://www.gdlaw.co.uk/site/blog/our-services/directors-duties-insolvency-duty-to-creditors-coronavirus

Pennywise

Jeremy535897 said:

There is no recourse to the assets of the directors, unless there has been fraud.

Also if the bounce back loan (or other funds) were paid to the director(s) as loans (which they'd be if there were no distributable reserves and it wasn't declared as wages), the liquidators/official receiver could claim repayment of the "loan" from the director(s) and could (and sometimes do) take legal action accordingly.

Jeremy535897

Pennywise said:

Jeremy535897 said:

There is no recourse to the assets of the directors, unless there has been fraud.

Also if the bounce back loan (or other funds) were paid to the director(s) as loans (which they'd be if there were no distributable reserves and it wasn't declared as wages), the liquidators/official receiver could claim repayment of the "loan" from the director(s) and could (and sometimes do) take legal action accordingly.

In this case, OP stated that some funds were used to repay part of the director's loan to the company, rather than to lend the director money, but as I pointed out earlier, this can still be an issue if the payment was made to the director while the company was not in a position to repay all its creditors, including the BBL.

gizmo111

Jeremy535897 said:

He needs to take advice. If the company is insolvent, it should not be trading. If it was insolvent when it repaid the director's loan account in part, that may have to be repaid. It sounds like the company will have to go into  a CVA or liquidation unless the director puts more money in.

Thanks for your help - the only creditors were the director and then the BBL.
The business started in June 2019 and invoiced £61K to 16 March, orders to June 2020 were £17.5K with more contracts being negotiated, all cancelled in March due to lockdown.  Director put in £20K in June 2019 and is still owed £7.5K
How does this work because surely the company has always been insolvent as it owed the director from day 1 - so should never have been trading??

Jeremy535897

It is more a question of carrying on when you know you will not be able to repay your creditors. Nobody worries if the company relies on a shareholder director loan, as the only person at risk is the shareholder director, but when the company is in a situation whereby it cannot repay independent creditors, then problems arise. As I say, it is best to get advice.