Sole trader bounce back loan implications

[frank759]

If a sole trader has taken out a bounce back loan for a business which unfortunately has to cease trading due to the pandemic, what are the practical implications...


- There's clearly no IP appointed for investigation of the affairs, and thus no insolvency service involvement.
- There's no public records of the business affairs.
- This would result in the bank itself chasing the debt and asking any questions about the business failure (would they even undertake this task at all if they have a government guarantee?)


- Clearly the debt is tied to the business owner so the bank would pursue them. But BBL rules state that their main residence and car can't be taken...
- This leaves 'any other assets' via normal debt collection, but if that person has no assets then not much can be pursued practically speaking either?


Finally,
- Would the debt appear on the sole trader business' credit file itself, or of the individual who owned the business?
- I believe it to be the former, but even if the latter, is the worst that can happen is there's a mark on a credit file...
- Or can the bank or government pursue the debt any other way? i.e. what if they feel some expenses weren't all business related - presumably as there's no insolvency service for sole traders, they'd have to pursue that cause separately through the courts, and then to what avail?

 

[UK Contractor Accountant]

Depends if fraud is involved in the original application or use of BBL funds. NCA can investigate in certain cases.

Genuine business failures who used BBL funds for intended purposes shouldn't have a problem. if no 'other' assets available then the guarantee kicks in.

 

[Chris Ashdown]

I thnk there was another post by a IP who stated it may depend on the way the money was spent if invested to keep the company going all was well but if just to pay the owners salary possible risks

 

[WaveJumper]

If sole trader is in financial difficulty and can't make bounce back loan repayments or any other debts my advice would be get some professional advice at the earliest opportunity. And I think the reference to UKFB advice recently was possibly from @Lisa Thomas who also posted a link to one of her videos

 

[Mark T Jones]

The real answer to your question will lie partly in the terms of the Government's guarantee to the bank, and partly in your conduct.

In theory they could pursue legal action, including court judgement and potentially a charging order over your home (which wouldn't necessarily come under the banner of taking the family home)

A sole trader business doesn't have a credit file, so to some extent your personal file will almost certainly be affected.

On most of these Government guarantees, there is a clause that the bank must pursue all available avenues to recover the debt. I don'yt know if this applies or is being enforced on BBL.

If / when the bank do claim, defaults are referred to a BBB collections team (outsourced) who will look at the details of the application and how the funds were used (if indeed they choose to pursue at all) - if these are in order it is unlikely they will pursue any further.

That's a worst case scenario. There is very little evidence yet of the approach being adopted

 

[Gavin Bates]

Hi

I would be interested to see what the other IP’s on this forum think but here is my personal view and I am afraid you will not like what I have to say.

There is no difference between an individual and the sole trader business that they ran. They are not separate entities and the individual is liable for the debts of that sole trader business.

I also believe that BBL’s were badly represented (particularly to sole traders) as being guaranteed by the government. The guarantee only supports the bank not the borrower. What I mean by this is it is now clear that the government expects the banks to push for the repayment of BBLs just like any other debt before they can claim the guarantee from the government.

What is not clear is what the banks have to show to the government in terms that a BBL is no longer recoverable. For instance in a limited company if that company has gone into liquidation and there is no return to creditors I would assume this is the evidence that is required.

Therefore I would expect the bank the bank to pursue you as the borrower which could include CCJ’s or even bankruptcy.

The main problem here is that we all in uncharted territory so we are all guessing.

Sorry if this unpleasant reading but ‘ I am prepare for the worst and hope for the best ‘ sort of chaps.

Regards

Gavin

 

[Chris Parkman]

Hello

I am afraid that I am of the same view as Gavin. I anticipate that the bank will eventually issue a Bankruptcy Petition, and the Official Receiver, or a private sector insolvency practitioner, will be appointed as the Trustee. The Trustee will then look to realise the assets of the bankruptcy estate, for the benefit of all creditors. I am afraid that this will include the family home.

The sole trader may wish to consider taking personal insolvency advice in respect of the options available to them.

 

[Mark T Jones]

Hello

I am afraid that I am of the same view as Gavin. I anticipate that the bank will eventually issue a Bankruptcy Petition, and the Official Receiver, or a private sector insolvency practitioner, will be appointed as the Trustee. The Trustee will then look to realise the assets of the bankruptcy estate, for the benefit of all creditors. I am afraid that this will include the family home.

The sole trader may wish to consider taking personal insolvency advice in respect of the options available to them.

It is explicitly stated that they won't take the family home

 

[WaveJumper]

As @Mark T Jones indicated above my understanding also. This from the British Business Bank:

"In addition, lenders are not permitted to require personal guarantees for the Bounce Back Loan Scheme. For sole traders or small partnerships, who often risk their personal assets when borrowing, the terms of the Bounce Back Loan Scheme means no recovery action can be taken over a principal private residence or a primary personal vehicle".

 

[Chris Parkman]

It is explicitly stated that they won't take the family home

Colin I agree the bank would not take the home, but I do not believe that restriction would be on the Trustee.

 

[WaveJumper]

I had forgotten how useful this link had been for FAQs, bit " historic" in parts I know:

https://www.british-business-bank.c.../bounce-back-loans/faqs-for-small-businesses/

 

[Mark T Jones]

Colin I agree the bank would not take the home, but I do not believe that restriction would be on the Trustee.

I suspect the political backlash of circumnavigating such a clear statement would be disproportionate. The possible exception being if there was significant evidence of fraud or abuse of the funds

 

[Paul Kelly ICHYB]

There is no difference between an individual and the sole trader business that they ran. They are not separate entities and the individual is liable for the debts of that sole trader business.

Some of the wisest words on this forum - should be tatooed onto the forehead of everyone who wants to start a business (along with a few other choice words!).

 

[Lisa Thomas]

I agree with the others, I suspect Bankruptcy might be forced upon the individual in order for the Bank to collect payment under the guarantee from the government.

If Bankruptcy ensures, their credit record will be damaged for 6 years.

As Chris has stated, the Bank might not pursue the debtors home (if applicable), but the Trustee in Bankruptcy would.

The debtor needs to take insolvency advice and explore insolvency options.

 

[ChrisCallaghan]

Hi all,

I'm a bit late to this thread but my understanding is the same as @Gavin Bates & @Lisa Thomas .

Ultimately as sole traders they are personally liable for their business debts. This principal does not change with BBLs. I agree the wording of the BBL guarantee scheme is misleading, but I suspect the only way Gov will honour their backing of the guarantee is if the sole trader enters into a recognised form of personal insolvency, i.e. an Individual Voluntary Arrangement or bankruptcy. I should stress I only suspect this to be case - I have yet to hear confirmation of this from a BBL lender or British Business Bank.

As others have mentioned, it's true that a BBL lender may not take action against a debtor's private residence, but that restriction does not apply to a trustee in bankruptcy. To my knowledge their are no restrictions to prevent a BBL lender from petitioning for a sole trader to be made bankrupt, so long as the sum owed is £5,000 or above.

 

[frank759]

Thanks for all your replies - there does seems to be two contrasting view points, and of course both are surmising.

It does however seem completely counter to the whole messaging of BBL that such a debt could end up with a trustee in bankruptcy when it was sold as a loan with the borrowers home specifically not being at risk. Surely there's be uproar if that started happening across the board.

As an aside point, what if the sole trader in question doesn't own a home or assets. Why would the bank go to the trouble & cost of getting a CCJ & bankruptcy petition with no prospect of that resulting in any return. I don't believe a bankruptcy order is the only way to prove someone can't pay a debt?

 

[Lisa Thomas]

Possibly because (we believe but have yet to have confirmation) the government is insisting on Banks taking all possible steps to recover the debt. Therefore the bank might be forced to make the debtor bankrupt in order to go cap in hand to the government and claw back the loan.

 

[WaveJumper]

Been said before but the wise move for anyone who's business is in trouble is to seek proper advice before simply folding and hoping for the best

 

[Mark T Jones]

Just had news that some banks are writing to customers who have been "imaginative" in their applications demanding immediate repayment.

The sub-text being that BBB are playing hardball with their guarantee

 

[ChrisCallaghan]

As an aside point, what if the sole trader in question doesn't own a home or assets.

A similar debate has been ongoing in other threads for Ltd companies. It seems likely the only way for a BBL lender to claim on the Gov's guarantee is if the borrower enters into a form of insolvency (e.g. bankruptcy for individuals or liquidation for companies). As mentioned by myself and others, we do not know this to be a 100% certainty, but it seems likely.

So for example, a sole trader has £10,000 BBL, but he/she is unable to repay this. The lender has made all reasonable attempts to recover this. The sole trader does not own their home or other assets of value. The lender may choose to spend a couple of thousands of £s in legal fees to petition for the sole trader to be made bankrupt. Gov will then pay out their guarantee. In a nutshell, the bank will have spent maybe £2,000 - £3,000 to bankrupt the sole trader to get £10,000 back from Gov. I think that's plenty of motivation for the lender.

 

[UK Contractor Accountant]

Looks like strike off/dissolution of Ltd's also enables banks to claim under the Guarantee.

I recall somebody bragging about this on the various Forums before he was shut down.

 

[Mark T Jones]

Been said before but the wise move for anyone who's business is in trouble is to seek proper advice before simply folding and hoping for the best

Or you could just claim to have been missold, like that idiot on here recently

 

[ChrisCallaghan]

Looks like strike off/dissolution of Ltd's also enables banks to claim under the Guarantee.

I recall somebody bragging about this on the various Forums before he was shut down.

I think this case you are referring to will be the exception rather than the rule. I cannot speak for the other insolvency advisors on this thread, but daily I am speaking to company directors who's application to strike off or compulsory strike has been objected to and suspended by the BBL lender. Very recently I spoke with a director who's BBL was only £6k, but the bank has still objected to a strike off application.

From my experience it now seems par for the course that a BBL lender will routinely object to either a voluntary or a compulsory strike off notice.

 

[WaveJumper]

Or you could just claim to have been missold, like that idiot on here recently

Yes I remember that thread. Makes me wonder how much due diligence did the banks actually undertake on behalf of us the tax payers. if I could actually get through to them on the phone I might just ask.

 

[Mark T Jones]

Yes I remember that thread. Makes me wonder how much due diligence did the banks actually undertake on behalf of us the tax payers. if I could actually get through to them on the phone I might just ask.

The answer is very little - in their defence they were under a lot of pressure to get money out of the door

 

[UK Contractor Accountant]

Yes I remember that thread

I think the Bank did object in that case but then let it go to Strike Off when they were advised no assets left in the company and were asked to wind it up. They somehow managed to claim under the Guarantee.

Maybe the Bank/Government relied on the new retrospective powers given to the Insolvency Service to investigate rogue Directors of dissolved companies.

 

[Mark T Jones]

I think the Bank did object in that case but then let it go to Strike Off when they were advised no assets left in the company and were asked to wind it up. They somehow managed to claim under the Guarantee.

Maybe the Bank/Government relied on the new retrospective powers given to the Insolvency Service to investigate rogue Directors of dissolved companies.

The big unknown/variable here is the relationship between BBB and their lenders, plus the terms of the guarantee.

It's already becoming clear that BBB is getting stricter on the guarantee, so putting pressure on banks to recover.

In addition to giving IPs powers, BBB have a substantial contract to investigate and take action against abusers of the system, hence said idiot has dodged one bullet, only to jump into the path of a bigger one.

 

[ChrisCallaghan]

I think the Bank did object in that case but then let it go to Strike Off when they were advised no assets left in the company and were asked to wind it up. They somehow managed to claim under the Guarantee.

Maybe the Bank/Government relied on the new retrospective powers given to the Insolvency Service to investigate rogue Directors of dissolved companies.

I've kept in touch with a a few directors in this situation to see if the strike offs will eventually go through. So far no luck, and they have invited creditors (usually the BBL lender only) to wind up. Hopefully from 1st Oct when CIGA restrictions on winding up petitions are lifted, we will start to see whether or not BBL lenders will start issuing winding up petitions.

I think the new retrospective powers granted to investigate directors of dissolved companies will be as a back up measure for any that are/were lucky enough to get a strike off across the line.

 

[WaveJumper]

I can see this topic having its very own heading on the UKBF, going to be very interesting to see how this all unfolds for all concerned.

 

[Mark T Jones]

I can see this topic having its very own heading on the UKBF, going to be very interesting to see how this all unfolds for all concerned.

The relationship between banks and Government is in itself an interesting one - including the bizarre decision of Lloyds to buy the lemon that was BOS on a whim one evening.

At the start of this crisis Rishi Sunak launched a - frankly pathetic - initial CBILS scheme, demanding that the banks 'must step up because we helped them out' - which to me is pretty much identical to demanding that a recovering alcoholic goes drinking with you to repay your support during rehab.

They launched BBL, general consensus was that it was a gift, easy money for banks - my comments then will tell you that I felt the opposite - that banks were dragged kicking & screaming to roll it out. Some lesser banks never got involved.

Now we are seeing the reality of guarantees, and the true nature of the relationship.

 

[Wantinglegaladvice]

Surely before all of the above steps discussed of forcing bankruptcy and IVAs, dialogue with the bank would help come to some sort of mutual arrangement such as manageable repayments or even a short holiday?

Some have discussed a government amnesty of some sorts in terms of support scheme repayments being dropped but I’m not sure how likely this is

 

[WaveJumper]

The relationship between banks and Government is in itself an interesting one - including the bizarre decision of Lloyds to buy the lemon that was BOS on a whim one evening.

At the start of this crisis Rishi Sunak launched a - frankly pathetic - initial CBILS scheme, demanding that the banks 'must step up because we helped them out' - which to me is pretty much identical to demanding that a recovering alcoholic goes drinking with you to repay your support during rehab.

They launched BBL, general consensus was that it was a gift, easy money for banks - my comments then will tell you that I felt the opposite - that banks were dragged kicking & screaming to roll it out. Some lesser banks never got involved.

Now we are seeing the reality of guarantees, and the true nature of the relationship.

Yes, I think your correct here I can see relationships becoming quite strained as the government dig their heals in over the way the money was handed out (even though they were quite happy at the time) and now the dust, so as to speak has settled and government come under more press & public scrutiny banks are going to be forced into getting tough.

As we mentioned before all fine, I guess if your genuine, but those who never had a going concern, misused the funds or were just blatant fraudulent claims for companies that never really existed may need to be looking over their shoulders

 

[frank759]

The recoveries process has now been revealed by the audit office:

BBL Collection and Recovery Procedure Agreed By Government and Lenders

The closely guarded secret that being the process that has been agreed between Bounce Back Loan lenders and the Government regarding the entire collections/recoveries procedure that must be followed has finally been revealed, come and take a look. [...]

mrbounceback.com

And it does state the banks can claim on the government guarantee before a full insolvency procedure is pursued.

 

[Spongebob]

The recoveries process has now been revealed by the audit office:

BBL Collection and Recovery Procedure Agreed By Government and Lenders

The closely guarded secret that being the process that has been agreed between Bounce Back Loan lenders and the Government regarding the entire collections/recoveries procedure that must be followed has finally been revealed, come and take a look. [...]

mrbounceback.com

And it does state the banks can claim on the government guarantee before a full insolvency procedure is pursued.

If this is true then the Spongebob Plan is the perfect solution for directors of insolvent companies with a bounce back loan and insufficient assets with which to pay a liquidator.

Simply write to the bank (and other creditors) explaining that the company has ceased trading due to being insolvent and has negligible assets.

Invite them to wind up the company so that it can be placed in compulsory liquidation.

If the bank can claim on the government guarantee without initiating winding up proceedings that’s exactly what they will do, and save themselves several thousand pounds in the process. The company will then sit in limbo for a while before being struck off by Companies House for non submission of the Confirmation Statement.

This is good news all round and was inevitable if the Insolvency Service was to be protected from being overwhelmed.

It is interesting that all focus has been on fraudulent applications for bounce back loans, rather than on the use of the loan after it was legitimately applied for. This seems to me a sensible distinction to make and will save countless hours of the Official Receiver’s time.

 

[ChrisCallaghan]

If this is true then I wander why the banks who have provided BBLs are objecting to strike offs (both voluntary and compulsory) so commonly? I've even now come across cases where they have instructed collection agencies - most commonly Barclays passing collection of BBLs to Westcott.

I've also yet to come across a BBL lender issuing a winding up petition. But to be fair they've only been only able to do this since 1st Oct, so I guess it's still early days.

All of the above said though, SpongeBob's method is still sound advice for directors without funds to instruct an IP for a Voluntary Liquidation, regardless of how banks are treating collection of BBLs.

 

[JEREMY HAWKE]

All of the above said though, SpongeBob's method is still sound advice for directors without funds to instruct an IP for a Voluntary Liquidation, regardless of how banks are treating collection of BBLs.

This is very true but it has been abused by people that have the money. Hence why promoting it on here is a bad idea .

As far as Spongebob and assets go quite a few directors that use this method owe the company large sums of money in DLs

This time they might follow the wind up process then get you personally for the BB loan
This would be the only way that they could recover their money from the government

 

[Spongebob]

If this is true then I wander why the banks who have provided BBLs are objecting to strike offs (both voluntary and compulsory) so commonly?

I can think of several reasons.

Uncertainty as to the precise process of making a claim on the government guarantee. The general assumption seems to have been that the company would have to go through a formal insolvency process before a claim could be made. It now looks as if this assumption was wrong.

The suspicion that the dissolution process (both voluntary and compulsory) was being abused by some companies with assets. Objecting to dissolution gives creditors time to pursue such companies. If it was thought that banks were throwing in the towel too easily the government would almost certainly make claiming on the guarantee more difficult.

I guess things will settle down now that the actual process becomes clearer. It is not in the banks’ or the government’s interests to waste inordinate amounts of money chasing debts which are uncollectable or pursuing directors who have nothing wrong other than preside over a business failure in very difficult times.

Receipt of the Spongebob letter will allow the bank to tick the right boxes and cover their arse when making a claim on the government guarantee.

CLOSING A LIMITED COMPANY WTH INSUFFICIENT FUNDS WITH WHICH TO PAY AN INSOLVENCY PRACTITIONER

CLOSING AN INSOLVENT LIMITED COMPANY WITH INSUFFICIENT FUNDS WITH WHICH TO PAY AN INSOLVENCY PRACTITIONER If a company is unable to carry on trading due to becoming insolvent the standard procedure for closing it down is for the directors to appoint an Insolvency Practitioner to liquidate it...

www.ukbusinessforums.co.uk

 

[JEREMY HAWKE]

I guess things will settle down now that the actual process becomes clearer. It is not in the banks’ or the government’s interests to waste inordinate amounts of money chasing debts which are uncollectable or pursuing directors who have nothing wrong other than preside over a business failure in very difficult times

I would say that this is a totally different environment than before !

It is completely in the banks interest to spend money on liquidating a business because it is the only way they will get their money back from the government.

Also going back to the OPs question?
At what point do the government decide to pay the bank back when they are unable to recover a sole traders BBL . I would guess it would be after a CCJ destroying the traders personal credit rating .
The bank can get a CCJ but under the BBL rules they would be unable to enforce it .
The government would then repay the bank

 

[Spongebob]

I would say that this is a totally different environment than before !

It is completely in the banks interest to spend money on liquidating a business because it is the only way they will get their money back from the government.

That was everyone’s assumption. This puts that in doubt. It could be that a claim on the government guarantee is possible without forcing a liquidation.

BBL Collection and Recovery Procedure Agreed By Government and Lenders

The closely guarded secret that being the process that has been agreed between Bounce Back Loan lenders and the Government regarding the entire collections/recoveries procedure that must be followed has finally been revealed, come and take a look. [...]

mrbounceback.com

 

[JEREMY HAWKE]

That was everyone’s assumption. This puts that in doubt. It could be that a claim on the government guarantee is possible without forcing a liquidation.

BBL Collection and Recovery Procedure Agreed By Government and Lenders

The closely guarded secret that being the process that has been agreed between Bounce Back Loan lenders and the Government regarding the entire collections/recoveries procedure that must be followed has finally been revealed, come and take a look. [...]

mrbounceback.com

How am I supposed to decifer if this person and his website is a reliable source of info