Bounce Back Loans & Director Drawings
The use, or misuse, of bounce back loans has been a hot topic of late with vastly different positions being taken by directors. Some have been overly cautious about taking out any bounce back loan monies as personal income, whilst others have withdrawn large sums for personal benefit without any thought for the consequences.
If your company is insolvent and needs to liquidate then, as a director, you may be anxious to know if there will be any ramifications for you personally and the Insolvency Service has now issued some informal guidance which helps clarify the position.
If a director was not eligible for support under the furlough scheme (i.e. they weren’t on payroll, or only took a minimal salary through payroll, as they were remunerated primarily via dividends) and they used Bounce Back Loan monies to draw funds for reasonable living expenses at a rate similar to that drawn pre-pandemic, then it would be difficult for an insolvency practitioner to justify taking action against the director, even if this has created an overdrawn DLA. This is particularly so if, by using the BBL monies in this way, there was an economic benefit gained by keeping the company afloat. This applies equally to a personal services company.
So, in short, if a director has used BBL money in this way and still ended up with a closed/insolvent company they should not be reticent about placing the company into voluntary liquidation. As always, it is best to take formal advice from an insolvency practitioner so that the business’ situation can be fully assessed, and we offer to do this free of charge and without obligation.