Bounce Back Loan — personal liability

BBLs were available March 2020 – March 2021 under the Bounce Back Loan Scheme:

• ›Loans of £2,000 to £50,000 (or 25% of annual turnover, whichever lower).
• ›100% government guarantee to the lender — the lender is paid out by HMG if the borrower defaults.
• ›No personal guarantees required — the director’s personal assets are not at direct risk from a standard default.
• ›6-year repayment term, with options to extend to 10 years.
• ›First 12 months interest-free; subsequent periods at fixed rate.

For most directors who used BBLs for genuine business purposes and whose companies have since become insolvent, no personal liability arises. The company is liable; the government honours the guarantee; the director is not personally pursued.

BBLs were specifically for ‘business purposes’. The British Business Bank scheme terms required directors to confirm the funds would be used for the business — not for personal expenditure, asset purchase for personal benefit, or distribution to shareholders. Misuse of BBL funds for personal purposes creates personal liability through several routes:

• ›Section 212 IA 1986 misfeasance — the liquidator can recover misused funds personally from the director.
• ›Section 213 IA 1986 fraudulent trading — in egregious cases involving deception.
• ›Section 214 IA 1986 wrongful trading — if BBL funds were drawn when insolvent liquidation was inevitable.
• ›Section 239 IA 1986 preferences — if BBL funds were used to pay favoured creditors (e.g., the director themselves) ahead of others.

Common misuse patterns: drawing BBL funds as director loan; transferring BBL funds to a connected company; using BBL funds for personal asset purchases; paying off personal credit cards from BBL funds.

BBL applications required directors to confirm various statements about the business — including that the business was viable, that turnover was at a stated level, and that the loan was genuinely needed. Misrepresentation in the application creates:

• ›Potential fraud offence under the Fraud Act 2006.
• ›Liability under section 213 IA 1986 fraudulent trading.
• ›Director disqualification under CDDA 1986.
• ›Loss of government guarantee — the lender can pursue the director personally if the government refuses to honour the guarantee due to application misrepresentation.

From October 2021, the government introduced specific powers to investigate companies that were dissolved (struck off) with outstanding BBL liabilities. The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 specifically targets directors who used strike-off to avoid BBL liabilities.

Section 1024 Companies Act 2006 restoration powers apply for 6 years; the Insolvency Service can investigate directors of struck-off companies and bring disqualification proceedings. Personal disqualification, compensation orders under section 15A CDDA 1986, and asset clawbacks are possible.

If you have a BBL and your company is in distress, the key protective steps:

• ›Use formal procedure rather than strike-off — CVL or administration preserves your position. Strike-off with BBL liability invites investigation under the 2021 Act.
• ›Document BBL fund usage — if questioned by the liquidator, you need to demonstrate the funds went into business expenses, working capital, or other legitimate uses.
• ›Don’t repay director loans from BBL proceeds — this is both preference and misfeasance.
• ›Don’t transfer BBL funds to connected parties — this is voidable.
• ›Take advice early — the BBL position is one of the principal investigation areas in every post-COVID CVL. Honest disclosure to the IP and good documentation are protective.

In any CVL where the company has an outstanding BBL, the liquidator’s investigation typically covers:

• ›BBL application accuracy — turnover statements, business purpose declarations.
• ›BBL fund usage — bank statement analysis tracing the BBL proceeds.
• ›Director benefit — did the director personally benefit from BBL funds?
• ›Preferences — was the BBL used to pay favoured creditors?
• ›Insolvency timing — when did insolvency become inevitable, and was the BBL drawn afterwards?

The investigation is routine — not an accusation. Most BBL usage is legitimate and the investigation concludes without director liability. But directors must cooperate and provide honest information.

For the broader director duties framework, see Director duties in financial difficulty. For wrongful trading specifically, see Wrongful trading. For director disqualification risks, see Director disqualification.