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During R3’s 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 published by R3 seek to answer those questions to aid the insolvency profession when advising clients who took advantage of a Bounce Back Loan (BBL).

The Bounce Back Loans Scheme (BBLS) was designed to enable UK businesses to access finance quickly during the coronavirus (COVID-19) pandemic. More than 1.5 million businesses that were losing revenue and seeing their cashflow disrupted as a result of the coronavirus outbreak took out a BBLS facility before the scheme closed to new applications on 31 March 2021.

FAQs

The BBLS guarantee is in place between the lender and the British Business Bank (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.

You can download our FAQ sheet here.

Following the publication of this article, R3 published a clarification on Q10 which can be found below.

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."