Bounce Back Loans (BBLs) were introduced at speed to support small businesses during the pandemic. Many directors used them correctly to stabilise cash flow or cover essential costs when trading conditions collapsed. But several years on, the rules around BBL use are being examined more closely, especially when an insolvent company enters liquidation.
If your business is struggling and you’re worried the Bounce Back Loan wasn’t used entirely as intended, you’re not alone. Thousands of directors are now facing the same question: what counts as misuse and what happens if the company can’t repay the loan?
What the Bounce Back Loan was meant for
Bounce Back Loans were designed to help businesses meet working capital needs during unprecedented disruption. Acceptable uses included:
- Paying suppliers
- Covering rent, utilities or insurance
- Funding staffing costs
- Supporting essential operational expenditure
- Stabilising cash flow to keep the business functioning
They were not intended for personal spending or non-business activity. However, many directors used the funds in good faith during a chaotic period, sometimes without perfect clarity on the rules. That context is important when concerns arise later.
What happens if your company can’t repay the Bounce Back Loan?
Being unable to repay the loan does not automatically mean misconduct has occurred. Many companies simply couldn’t return to pre-pandemic trading levels, or were hit by further economic pressures.
Limited liability usually protects directors from personal liability unless there is evidence of misuse, wrongful trading or a personal guarantee (which BBLs did not require). If the loan was used for legitimate business purposes, the outstanding balance is written off in liquidation.
So the key question isn’t whether you can repay it. It’s whether the loan was used in a way consistent with your duties as a director once the business came under financial strain.
What counts as Bounce Back Loan misuse?
Misuse is usually defined as spending the loan on anything unrelated to the company’s legitimate business activity. The most common examples include:
- Personal purchases or withdrawing the funds for personal use
- Paying dividends when the company has no distributable profits
- Transferring the money to connected individuals without business justification
- Buying assets that never belonged to the business
- Using the loan to repay one specific creditor while others were left unpaid (known as a preference payment)
If a company enters liquidation, the liquidator must review how the Bounce Back Loan funds were used. This requirement applies to every insolvent company and is not targeted at those who made reasonable decisions under pressure.
How misuse is assessed in liquidation
Every Creditors’ Voluntary Liquidation (CVL) includes a statutory director conduct review. For an unpaid Bounce Back Loan, the liquidator will look at:
1. How the business is trading: If the company is already insolvent, director duties shift towards protecting creditors.
2. How the Bounce Back Loan was spent: Bank statements and company accounts show where funds went. Payments linked clearly to legitimate business activity rarely cause issues.
3. Whether the loan was used personally: Where money was withdrawn for personal use, the liquidator may request repayment. This is handled case by case, taking context into account.
What if the BBL was spent trying to save the company?
Many directors used Bounce Back Loans to cover costs while hoping trading would improve. Even if the business ultimately failed, this does not automatically amount to misuse. We frequently see cases where:
- Funds were used to pay suppliers
- The loan covered rent and utilities
- Money was used to meet payroll obligations
- The company attempted to pivot or rebuild trading
These uses are generally considered legitimate, even if they did not lead to recovery.
What to do if you’re worried the loan wasn’t used correctly
1. Gather your records
Bank statements, invoices, management accounts and internal notes help show good faith and the commercial reasons behind decisions.
2. Take early professional advice
Speaking to a licensed insolvency practitioner is viewed positively. It shows you acted responsibly and sought to minimise losses.
3. Consider whether the business is still viable
If the company cannot recover, a Creditors’ Voluntary Liquidation creates a structured, compliant end to the business and deals with the Bounce Back Loan formally.
How a Creditors’ Voluntary Liquidation handles the BBL
A CVL is often the safest route when debts are unmanageable. It:
- Can stop creditor pressure
- Transfers all communication to the insolvency practitioner
- Ensures the Bounce Back Loan and other unsecured debts are written off, unless misconduct is found
- Provides directors with legal certainty if they have acted responsibly
This is why so many directors choose a voluntary liquidation route rather than wait for HMRC or lenders to escalate matters.
Key takeaways for Bounce Back Loan misuse
- Bounce Back Loan misuse usually relates to personal spending or decisions taken without regard for creditor interests
- Being unable to repay the loan does not equal misconduct
- Most directors who acted reasonably, even under pressure, face no personal consequences
- Early advice is the strongest way to demonstrate responsible behaviour
Get advice on Bounce Back Loan misuse
When in doubt, get clarity. It protects both you and the business, and ensures you make decisions based on your duties, not assumptions.
If you’re worried about how your Bounce Back Loan was used, or you think the company may now be insolvent, speaking to a licensed insolvency practitioner is the safest way to protect yourself.
We’ll review your position confidentially, explain what the Insolvency Service looks for and outline your options so you can make a well-informed decision about what comes next.
Contact us today for free, confidential guidance.
