Bounce Back Loans: when a director becomes personally liable

What the scheme promised

The Bounce Back Loan Scheme opened in May 2020 and closed to new applications on 31 March 2021. The British Business Bank's factsheet for the scheme set out the terms: loans from £2,000 up to 25 per cent of turnover with a ceiling of £50,000, a government-set rate of 2.5 per cent a year, no repayments in the first twelve months with the government paying the first year's interest to the lender, and a six-year term with no fee for early repayment. The gov.uk fact sheet on the loans confirms that repayment runs over six or ten years, with payments starting twelve months after the company received the money.

Two features matter for what follows. The lender received a 100 per cent government guarantee, so the bank is made whole by the Treasury when a loan goes unpaid. And in the factsheet's own words, no personal guarantees are allowed, and no recovery action can be taken over a principal private residence or principal private vehicle. The borrower, meaning the company, always remains 100 per cent liable for the debt.

The application was self-certified. The business confirmed online that it was established by 1 March 2020, that it had been adversely affected by the pandemic, that it was not in liquidation or debt restructuring, and it stated its turnover. Nobody checked at the time. The gov.uk fact sheet records that the money could be used for something that would give the business an economic benefit, such as a vehicle, and was not to be used for personal purposes.

The loan is the company's debt

The starting point is the one directors hope for. The loan was made to the company. There is no guarantee, so the lender has no contractual claim against the director, and if the company goes into liquidation the lender proves in the liquidation for what it is owed, claims the shortfall from the government under the guarantee, and that is the end of it as far as the bank is concerned.

A director becomes personally exposed only where something else has happened: the money was taken out for personal use, creditors were paid in the wrong order, the company traded on when it should have stopped, or the application was untrue. Each of those is a route that exists in insolvency law generally and is covered in our guide to when directors are personally liable. What follows applies them to the loan, because the loan is where the Insolvency Service and liquidators have concentrated their attention since 2021.

Using the money for personal benefit

This is the most common finding. The loan arrives, and within days a sum goes to the director's personal account, clears a personal credit card, pays a deposit on a car in the director's own name or funds a transfer to a family member. In the accounts it appears as a director's loan, if it appears at all.

In a liquidation that money is recovered from the director in two ways. First, it is a debt on the director's loan account, which the liquidator demands as an ordinary debt owed to the company. Second, section 212 of the Insolvency Act 1986 gives the liquidator, the official receiver or any creditor a summary route against a director who has misapplied or retained company money or been guilty of misfeasance or breach of duty. The court can order the director to repay, restore or account for the money with interest, or to contribute to the company's assets by way of compensation. Taking company money at a time when the company was insolvent, for a purpose that was of no benefit to the company, is the paradigm case.

The director's answer that the company owed them money already, or that they intended to repay, seldom helps. The first is a matter of evidence, and the loan account usually shows the opposite. The second is no defence to having taken it.

Repaying yourself or family first

The second pattern is the director who used the loan to repay a debt the company owed to themselves, to a relative, or to a creditor they had personally guaranteed, and then let the company fail.

Section 239 of the Insolvency Act 1986 allows the liquidator to unwind a preference, which is anything the company did that put a creditor, surety or guarantor in a better position on the insolvent liquidation than they would otherwise have been in, where the company was influenced by a desire to produce that result. Where the person preferred is connected with the company, which includes the directors and their associates, the desire is presumed unless the contrary is shown. Under section 240 the liquidator can go back two years for a preference to a connected person and six months for anybody else, provided the company was unable to pay its debts at the time or became unable as a result.

Section 238 catches transactions at an undervalue: a gift, or a transaction for consideration significantly less than what the company gave. Paying a supplier what the company owed is no undervalue. Transferring the van the loan bought to the director's spouse for nothing is one. The look-back is two years, and for a connected person the company's insolvency at the time is presumed.

The result of either claim is an order restoring the position, which means the director or the relative pays the money back to the liquidator, who distributes it to the creditors as a whole. Paying off a personally guaranteed overdraft with the loan is the clearest example: the director's exposure under the guarantee was reduced, the other creditors' position was worsened, and the bank is the same bank that lent the money.

Wrongful trading

Section 214 applies where the company has gone into insolvent liquidation and a director knew or ought to have concluded, at some point before it did, that there was no reasonable prospect of avoiding that. From that point the director is expected to take every step with a view to minimising the potential loss to creditors, and if they did not, the court can order them to contribute to the company's assets.

The standard is that of a reasonably diligent person with the general knowledge, skill and experience expected of somebody doing the director's job, raised to the director's own actual knowledge and skill where that is higher. A director who took a Bounce Back Loan into a company that was already insolvent, used it to keep the doors open for eighteen months while the position worsened, and then put the company into liquidation with the loan unpaid, has a wrongful trading exposure for the additional loss over that period. The loan itself, being new borrowing the company could not repay, is part of the loss.

The defence is evidence: board minutes, cash flow forecasts, advice taken, and a record of the decision to carry on and why. Without it the argument becomes one director's recollection against a liquidator with the bank statements.

False statements on the application

The application asked for turnover, and the loan was capped at a quarter of it. A business with £60,000 of turnover was entitled to £15,000; one that put £200,000 on the form received £50,000. The Insolvency Service's published cases are full of directors who inflated turnover, applied for loans through more than one company or more than one lender for the same business, or applied for a company that had not been trading on 1 March 2020.

A false statement of that kind is fraud, and it has been prosecuted. It is also, in the civil sphere, the clearest possible evidence of unfitness for disqualification purposes and of misfeasance for section 212 purposes, because a director who borrowed more than the company was entitled to and could not repay caused the loss by the borrowing itself. In the fourteen months to 31 May 2023 the Insolvency Service reported nine successful prosecutions and £231,000 of compensation orders for Bounce Back Loan abuse, and its figures for 2024-25 show 736 of the year's 1,036 disqualifications were for Covid loan abuse, with an average ban of eight years.

Dissolving the company no longer works

The route many directors took in 2021 was to stop trading, file a DS01 and let the company be struck off with the loan unpaid. The bank claimed on the guarantee, the company disappeared, and there was no liquidator to ask questions. Under the law as it stood, the Insolvency Service could only investigate a director whose company had been through an insolvency process, so a dissolved company was out of reach unless somebody paid to restore it.

The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 was passed to deal with that. From 15 February 2022 section 6 of the Company Directors Disqualification Act 1986 applies to a person who has been a director of a company which has at any time been dissolved without becoming insolvent, and the amendments apply to conduct and dissolutions before that date as well as after. The Insolvency Service can now investigate the director of a dissolved company, apply for disqualification and seek a compensation order without the company being restored.

Applying to strike off a company that owes a Bounce Back Loan also breaches the duty in section 1006 of the Companies Act 2006 to send a copy of the application to every creditor, of which the lender is one, and that is an offence in its own right. The mechanics of strike off, and the lender's ability to restore the company, are in our guide to striking off a company.

Disqualification and compensation orders

Disqualification under section 6 of the 1986 Act runs for between two and fifteen years. A disqualified person cannot be a director of any UK company or be concerned in its promotion, formation or management, and under section 15 of the same Act anybody who takes part in managing a company while disqualified is personally liable for the debts it incurs during that time.

The financial consequence sits in section 15A. Where a person is subject to a disqualification order or undertaking and their conduct as a director caused loss to one or more creditors of an insolvent or dissolved company, the Secretary of State can apply to the court for a compensation order, or accept a compensation undertaking, within two years of the disqualification. The order requires the director to pay an amount for the benefit of the creditors who lost out. In Bounce Back Loan cases that creditor is the lender, and behind it the Treasury.

The two run together. The conduct report the liquidator must send to the Secretary of State within three months of the insolvency identifies the use of the loan; the Insolvency Service seeks a disqualification undertaking, and most directors give one to avoid the cost of defending proceedings; and the compensation application follows within the two years. A director who gave the undertaking thinking it ended the matter finds that it started the clock on the money.

What to do if the company cannot repay

Do not dissolve it. That is the one step that turns a company debt into a personal problem, because it breaches section 1006, it invites restoration by the lender, and it is the fact pattern the 2021 Act was written for.

Talk to the lender first. The gov.uk fact sheet confirms repayment over six or ten years with payments starting twelve months after the loan, and the Pay As You Grow options let a borrower extend the term. A company that can service a smaller monthly figure should ask for it before missing a payment.

If the company is insolvent, take advice from a licensed insolvency practitioner and consider a creditors' voluntary liquidation. The loan is an unsecured debt in the liquidation like any other. The lender proves for it and claims under the guarantee, and the company is wound up under a process that ends the directors' exposure to further trading losses from the day the decision is taken. The liquidator will investigate the use of the loan, which is unavoidable, and a director whose loan account shows the money going out to them should expect a demand for it. That demand is the same whether the director cooperates or not; what changes is the length of any disqualification and whether the Insolvency Service sees a director who put things right or one who had to be pursued. Our guide to directors' duties in financial difficulty covers the every step defence and what the board should record.

If the loan was spent on the business and the business failed anyway, the position is the one the scheme was designed for. The lender is paid by the guarantee, the company is wound up, and a director who used the money as intended and kept the records to show it has nothing to repay. The records are the point: bank statements showing the loan going to suppliers, wages and rent are what separate that director from the one in the paragraphs above.

Frequently asked questions

Am I personally liable for my company's Bounce Back Loan?

Not by the loan itself. The scheme allowed no personal guarantees, the lender has a 100 per cent government guarantee, and the debt is the company's. You become personally exposed where the money was used for personal benefit, where you repaid yourself or a relative ahead of other creditors, where the company traded on after there was no reasonable prospect of avoiding insolvent liquidation, or where the application overstated turnover or was otherwise untrue. Each of those is a claim a liquidator or the Insolvency Service can bring against you.

What happens if I used the Bounce Back Loan for personal expenses?

In a liquidation the money is recovered from you. It is a debt on your director's loan account, which the liquidator demands, and section 212 of the Insolvency Act 1986 lets the liquidator or any creditor apply to court for an order that you repay it with interest or compensate the company. The Insolvency Service treats personal use of the loan as unfit conduct for disqualification purposes, and a compensation order can follow the disqualification within two years.

Can I dissolve my company with the Bounce Back Loan unpaid?

No, and since 15 February 2022 it is the worst option available. Applying to strike off without sending a copy to the lender breaches section 1006 of the Companies Act 2006, which is an offence. The lender can have the company restored and wound up. And the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 lets the Insolvency Service investigate, disqualify and seek compensation from the director of a dissolved company without restoring it, for conduct before or after the Act.

What is a compensation order?

An order under section 15A of the Company Directors Disqualification Act 1986 requiring a disqualified director to pay compensation for loss their conduct caused to creditors of an insolvent or dissolved company. The Secretary of State applies within two years of the disqualification order or undertaking, or accepts a compensation undertaking instead. In Bounce Back Loan cases the creditor who lost out is the lender, and behind it the Treasury, and the sum sought reflects the misapplied loan.

What should I do if my company cannot repay the loan?

Do not dissolve it. Speak to the lender about the Pay As You Grow options, which allow the term to be extended. If the company is insolvent, take advice from a licensed insolvency practitioner about a creditors' voluntary liquidation, in which the loan is an unsecured debt and the lender claims under the government guarantee. Keep the records showing where the money went, because a director who spent the loan on the business and can prove it has nothing to repay personally.

How long can I be disqualified for?

Between two and fifteen years under section 6 of the Company Directors Disqualification Act 1986. The Insolvency Service reported that in 2024-25 it disqualified 1,036 directors, 736 of them for Covid loan abuse, with an average ban of eight years. While disqualified you cannot be a director of any UK company or be involved in forming or running one, and under section 15 of the Act you are personally liable for the debts of any company you manage in breach.

Sources & further reading

• British Business Bank: Bounce Back Loan Scheme factsheet, May 2020
• GOV.UK: fact sheet on Bounce Back Loans
• Insolvency Act 1986, section 212
• Insolvency Act 1986, section 214
• Insolvency Act 1986, section 239
• Company Directors Disqualification Act 1986, section 15A
• Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021, section 2
• Insolvency Service: more than 1,000 directors disqualified in 2024-25

This article is general information, not legal advice. The law changes and depends on your circumstances — always take advice on your specific situation before acting. Last reviewed 22 September 2026. AD Solicitors Limited is a recognised body regulated by the SRA (no. 8011228).