Covid Bounce Back Loans are a ‘Mountain of Debt’ for Businesses

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Billions of pounds in loans to help small and medium-sized businesses survive the coronavirus pandemic is a ‘mountain of debt’ that businesses should start paying off as soon as possible.

Claire Lang

This is the message from leading corporate and commercial lawyer Clare Lang who encourages companies to use the lifting of Covid restrictions and the growth in commerce that accompanies it as a window of opportunity to reduce their responsibilities. .

Ms Lang, a partner at Shropshire mfg Solicitors law firm, said the loans would be considered by future liquidators, while directors could find themselves personally liable if their companies were unable to pay.

She urges all directors who may not be able to repay their loans to seek legal advice on their options.

Almost 1.6 million Bounce Back loans worth a total of £ 47 billion have been approved and accounted for the largest part of the more than £ 80 billion of total government guaranteed loans during the pandemic.

Ms Lang said: “The Bounce Back loans were a vital emergency lifeline for many businesses that were unable to do business normally during the coronavirus restrictions. But it is not free money and the debt will have to be paid off. Now is the time to act to reduce the mountain of debt, when restrictions have been lifted and most businesses can do business. “

One of the perks of the loans was that administrators weren’t asked to provide personal collateral, but Ms. Lang warned that didn’t mean they couldn’t be held accountable.

She added: “If the loan cannot be repaid, the company may be insolvent, the responsibility rests with the creditors and not the shareholders,” she said. “If the company cannot repay the loan, a liquidator can review where the loan was spent and the directors can be held personally liable if the funds were spent to repay other debts, as this would be considered to be debt. company money.

“The important thing that any administrator should do in case they cannot start repaying these loans is to make sure that they are upfront and transparent with the insolvency department and the lenders,” she said. . “It wasn’t free money. It was never meant to just keep businesses going during the lockdown. These debts must start to be repaid or they will become the same as any other bad debt – the directors being held accountable. “


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