**UPDATE, 26 October 2021 - The answer to question 8 'Can a bounce back loan be compromised through a Company Voluntary Arrangement (CVA) or a Restructuring Plan (RP)?' has been updated.
**UPDATE, 9 September 2021 - Following discussions with the Insolvency Service, the original answer to Q.10 of these FAQs has been withdrawn and replaced. Please see below for more information together with a joint statement from the RPBs.**
During the webinar titled ‘Bounce Back Loans – An Essential Guide for the Insolvency Profession’ a number of questions were submitted by attendees for consideration by the British Business Bank, UK Finance and The Insolvency Service. These FAQs seek to answer those questions to aid the insolvency profession when advising clients, who took advantage of a Bounce Back Loan. Please note that this is a non-exhaustive list of examples of factual scenarios that may arise and is provided for information purposes only. It does not constitute formal guidance from the British Business Bank and it is without prejudice to any rights that the BBB may have under the Guarantee including any rights of the BBB to reject a claim against the Guarantee or terminate a scheme Guarantee.
This content is not intended to constitute legal advice. The answers provided are not intended to be statements of law and are not a substitute for professional or legal advice. The contributing editiors believe that the answers provided below are accurate but accept no liability for any fault, error, negligence, or omission howsoever caused, or for any loss or damage of any kind resulting from reliance on their contents.
The Bounce Back Loans Scheme (BBLS) was designed to enable UK businesses to access finance quickly during the coronavirus pandemic. More than 1.5 million businesses that were losing revenue and seeing their cashflow disrupted as a result of the COVID-19 outbreak took out a BBLS facility before the scheme closed to new applications on 31 March 2021.
These FAQs have been prepared in conjunction with:
- The British Business Bank (BBB) (Link)
- The Insolvency Service (Link)
- UK Finance (Link)
The BBLS Guarantee is in place between the Lender and the BBB. Whether a Lender is able to claim or not under the Guarantee is a contractual issue between the Lender and the BBB and does not impact on the Lender’s rights as a creditor in an insolvency process. The Borrower contracts with the Lender for the loan and their obligations to pay the loan are to the Lender. Lenders are obliged in most circumstances to follow their normal recoveries policy in relation to BBLS. It is not the case that Lenders on a default can rely solely on the Guarantee, and where a claim is made under the Guarantee, the Lender must account to the BBB for any proceeds recovered from the borrower. Therefore, in an insolvency process, subject to (i) the restrictions on taking/enforcing security highlighted in this Q&A and (ii) the recoveries waterfall, the Insolvency Practitioner (IP) should treat the Lender as it would any other lender of non-BBLS debt.
(1) Can a Lender count on an existing all monies personal guarantee given by a director (or any individual) for a separate loan facility when seeking to recover monies under a BBLS loan?
The Lender is not expected to take any security in connection with a BBLS loan and is not required to extend the benefit of any existing security to also cover the BBLS loan. In particular, the Lender is not able to take or enforce a personal guarantee in connection with a BBLS loan. Please see below question 4 about an all monies debenture, which is the exception to extending existing security to the BBLS loan.
Note – For Coronavirus Business Interruption Loan Scheme (CBILS) there is no requirement to pursue an all monies personal guarantee a lender may already have in place where the CBILS facility is <£250k.
(2) Can a Lender still claim under the BBLS Guarantee Agreement if they have lent outside the terms? For example, a company incorporated after the deadline or if they have lent over and above the 25% of turnover?
In order for a claim to be valid under the BBLS Guarantee Agreement, the Lender must have conducted the various mandatory checks required as part of the scheme. Note however that the Lender is able to rely on the borrower’s self-certification of compliance with the eligibility criteria detailed in the BBLS Guarantee Agreement and was not required to verify most of the criteria. Ultimately whether the Lender is able to claim under the Guarantee Agreement is a matter between the Lender and the BBB and does not impact the Lender’s rights against the borrower.
(3) Can a Lender claim under the guarantee for non-payment even if the BBLS loan funds were used to reduce the borrower's overall liability to the lender?
A claim can be made although it should be noted that if a lender required a borrower to pay down commercial debt as a condition of drawing the BBLS, then this would not be in the spirit of the scheme.
(4) Can BBLS loans be caught by an existing floating charge?
The guidance is that if a Lender would normally use the proceeds of an all monies debenture to discharge unsecured debt (even if the use of proceeds in that manner has not been flagged to the borrower or recorded in the loan documentation), then we would expect it to use its usual process.
(5) Is it possible to obtain copies of the BBLS loan documentation? For example, the Guarantee Agreement or the Statement of Agreed Principles.
There are no current plans to provide a copy of the Collaborative Statement of Agreed Principles as this is a confidential document containing sensitive information. Discussions are currently underway in relation to whether any elements of the Guarantee Agreement can be made available.
(6) Are the Lender Manuals and BBLS Guarantee Agreements identical terms?
The Lender Manual is based on the requirements contained within the Guarantee Agreement and provides operational guidance on the management of the scheme. Under the terms of the Guarantee Agreement, the Lender is required to comply with both the terms of the Guarantee Agreement and the Scheme Guidance. In the event of any inconsistency between the Scheme Guidance and the Guarantee Agreement, the Guarantee Agreement takes precedence.
(7) Can a BBLS loan or a Coronavirus Business Interruption Loan Scheme (CBILS) be transferred between Lenders?
A BBLS loan or a CBIL cannot be transferred between Lenders.
(8) Can a bounce back loan be compromised through a Company Voluntary Arrangement (CVA) or a Restructuring Plan (RP)?
In relation to IVA’s/CVA’s, it is the lender’s decision whether to vote in favour of the terms of the arrangement presented by the borrower (in line with BAU practice). If the arrangement is approved and the terms include the use of the proceeds of the PPR (principal private residence) and PPV (primary personal vehicle) for the repayment of debt (including the BBL) then this is acceptable. This process is effectively seen as no different to the borrower actually signing the declaration in Annex 11 of the Lender Manual given that it will be the borrower who will be voluntarily proposing the terms of the arrangement to creditors and in some cases may be completing this action to remove the threat of bankruptcy. We would stress that in all circumstances it is the borrower’s decision whether to voluntarily include the proceeds of PPR and PPV in any arrangement made and this is not something which the Lender should influence in any way. Where it is possible it would be ‘good order’ for the declaration in Annex 11 of the Lender Manual to be signed, notwithstanding the implied consent as described above.
(9) What is the view of the Insolvency Service on directors using BBLS loan monies on a reasonable basis to cover their living costs if they had no other means of getting income (e.g. Furlough Scheme)? Particularly, Personal Service Companies where main day to day expenses has always been for the director's services in their company.
This would have to be judged on a case by case basis.
If a director has no other income at all (because they were not eligible under the Furlough Scheme) and they used the BBLS loan monies to draw funds for reasonable living expenses at a rate similar or lower to that pre-pandemic then it would be difficult to justify taking action against the director, particularly if by using the BBLS loan monies in this way there was an economic benefit gained from keeping the company afloat (especially a Personal Services Company). It would be a different consideration if the director had spent the full BBLS loan monies of £50K in a few months outstripping previous drawings.
(10) Scenario – Company A is insolvent and on the advice of an IP, the company should be placed into Creditors Voluntary Liquidation. There is cash at bank of c£10k to fund the costs of placing the company into liquidation. However, Bank B is still owed monies under a BBLS loan granted to the company. Bank B has a right to set-off in respect of the credit balance in the account.
Is it considered ethically wrong if the IP advises the director to transfer the credit balance to a designated client account in advance of the liquidation, which would defeat the bank’s ability to exercise set-off, to pay for the costs of the liquidation?
If a borrower had an account with the lender and it owed money to the lender – the same principles would apply to that as would apply to the BBLS. Where the lender has a right of set-off, it may exercise that in respect of the BBL in the same way as it would for any other monies owed.
NOTE - Joint Statement from the ICAEW, IPA, ICAS and CAI "The RPBs have noted the revised response to the FAQ and expect IPs to comply with the insolvency Code of Ethics. IPs should continue to use their judgement as they would do in any other situation to consider threats to the fundamental principles based on the specific circumstances encountered and where threats are at an unacceptable level should consider whether any safeguards can be applied to reduce threats to an acceptable level. IPs should consider seeking independent advice where appropriate and ensure that appropriate documentation of their decisions and of any advice given is maintained in accordance with the Code of Ethics requirements."
(11) Will the ‘Recoveries Waterfall’ shown in the webinar be published?
The Recoveries Waterfall was shared as part of the Webinar on 22 June to allow attendees to understand how recovery proceeds are to be apportioned. There are no further plans to share this document although all accredited lenders have detailed knowledge of the processes to be followed.
This page will be regularly monitored and updated when necessary. Members are more than welcome to submit further questions, which will be collated and passed on to the contributors of this page for clarification. Questions to be submitted to Ben Luxford, Head of Technical at R3 here.
- R3 Standard Form COVID 19 CVA Proposal
- Creditor Guides
- COVID-19 Contingency Arrangements
- Dealing with corporate financial distress
- Dealing with money worries – a guide to your options
- Insolvency Service
- Standard Conditions - IVA
- Standard IVA Protocol
- Further guidance