Billions of pounds worth of loans to help small and medium sized enterprises survive the coronavirus pandemic are a “debt mountain” businesses should start to pay off as soon as possible.
That is the message from leading corporate and commercial lawyer Clare Lang, who is encouraging businesses to use the lifting of Covid restrictions and the accompanying growth in trade as a window of opportunity to reduce their liabilities.
Ms Lang, a partner at Shropshire law firm mfg Solicitors, said the loans would be taken into account by future liquidators, while directors could find themselves personally liable if their companies cannot pay.
She is urging any directors who might be unable to repay their loans to seek legal advice about their options.
Almost 1.6 million Bounce Back Loans worth a total of £47 billion have been approved and were the largest part of more than £80 billion of total government-backed loans during the pandemic.
Ms Lang said: “Bounce Back Loans were a vital emergency lifeline for many businesses who were unable to trade as normal during coronavirus restrictions. But this is not free money and the debt will have to be repaid. The time to act to reduce the debt mountain is now, while restrictions have been lifted and most businesses are able to trade as normal.”
One advantage of the loans was that directors were not asked for personal guarantees, but Ms Lang warned that did not mean they could not be held liable.
She added: “If the loan cannot be repaid, the company may be insolvent, responsibility falls to the creditors and not the shareholders,” she said. “If the company cannot repay the loan, a liquidator may look into where the loan was spent and directors may be deemed personally liable if the funds were spent to pay off other debts as this would be deemed money of the company.
“The important thing for any director to do in the event that they cannot start paying these loans back is to ensure they are up front and transparent with the Insolvency Service and lenders,” she said. “This was not free money. It was only ever intended to keep businesses going through lockdown. These debts have to start to be repaid or they will become the same as any other bad debt – with directors held liable.”
The Insolvency Service has taken action against businesses abusing the financial support including disqualifying a director for 12 years.