What happens to my CBILS loan during liquidation or administration?

The Coronavirus Business Interruption Loan Scheme, or CBILS, offered a valuable source of emergency finance for businesses during the coronavirus pandemic back in 2020. With 80% of the loan amount backed by the government, the funding was provided by accredited lenders to businesses with a turnover of less than £45 million.

Bounce Back Loans were aimed at smaller companies and were fully backed by the government in order to reduce the risk for lenders, and encourage lending. This meant no personal guarantee had to be provided by the directors of the company taking out a Bounce Back Loan.

If you took out a CBILS or Bounce Back loan, you may be wondering what happens to any outstanding loan amount if the company now has to enter administration or liquidation.

Terms and conditions of a CBILS loan

While a Bounce Back Loan was 100% secured by the government, CBILS loans were offered on slightly different terms. With a CBILS loan, the government provided security to the banks worth 80% of the total amount taken out by a company via the CBILS scheme. The remaining 20% of the loan, however, was issued at the banks own risk. In reality, this meant that some lenders demanded personal guarantees from directors to cover this 20% shortfall. 

Before you go any further down the road of considering liquidation or any other formal insolvency process for your company, it is vital to ascertain whether you have indeed signed a personal guarantee for your CBILS borrowing as this will determine whether there is likely to be any personal liability for a percentage of the loan which remains outstanding. 

If you have a Bounce Back Loan, however, no personal guarantee will have been required, therefore so long as you have not fraudulently obtained a Bounce Back Loan or used the funds in a fraudulent manner, you will typically have no personal liability for any amount which remains outstanding should your company enter into a formal insolvency process such as liquidation or administration.

What happens to a CBILS or Bounce Back loan during administration?

The administration of the Company will crystallise the balance owed on either the CBILS or Bounce Back Loan and this will become a provable debt in the administration and any security/personal guarantees in place will be activated accordingly.

Other options may be available regarding the future of the company. Unsecured loans can be included within a Company Voluntary Arrangement (CVA), whereby a single affordable monthly amount is negotiated by the administrator. This may include the CBILS or Bounce Back Loan and ensure more affordable terms can be arranged.

A sale of the business is also a possibility depending on the administrator’s assessment of the company and its suitability for this process.

If the company is no longer viable, however, liquidation may be the only outcome.

What happens to a CBILS or Bounce Back Loan during liquidation?

Any debts that remain unpaid after the sale of assets and distribution of funds in liquidation are written off prior to the company closing down. As a Bounce Back Loan required no personal guarantee, directors will face no personal liability for repaying the outstanding amount so long as the loan was obtained and spent in a non-fraudulent way. What happens to a CBILS loan during liquidation largely depends on whether security or a personal guarantee was provided when the loan was taken out.

CBILS loans did not necessarily require security or a personal guarantee to be given, but some lenders still sought this additional security from borrowers.

If you’ve provided security or a personal guarantee for a CBILS loan, you need to carefully check the terms agreed as you could potentially be personally liable for part of the loan should the company enter liquidation. If you can’t afford to pay they may pursue you through the courts to enforce it. This could lead to significant financial problems on a personal level, alongside the loss of your company.

Seek early professional advice

Begbies Traynor Group is the UK’s leading business rescue and recovery specialist, and can provide the professional assistance you need. We’ll advise on what happens to your CBILS or Bounce Back Loan during liquidation or administration, and your personal risk of liability.

Please contact one of our partner-led team of licensed insolvency practitioners to find out more. We can arrange a free same-day consultation, and operate from a network of local offices throughout the country.