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.
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.
The administration of the Company will crystallise the balance owed on the CBILS 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 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.
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. 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.
If you enter Creditors’ Voluntary Liquidation (CVL), it’s worth mentioning that you may be able to claim director redundancy pay. This could reduce the damaging effect of the failure of your company, and help you meet some of yours or your company’s financial liabilities.
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 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.
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