Making a company dormant with Bounce Back Loan

Making a company dormant with Bounce Back Loan

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So, Ive been having a chat with a potential new client who took out a bounce back loan last year of £15k.  They have been trading on a much smaller scale since, and the last few months havent turned a profit so he is looking at his options.  He has been advised by his current accountant to liquidate the business however, he wants to eventually repay the bounce back loan.  His question to me was, 'if he made the company dormant, would this make the repayments to his loan provider dormant also?'  Does anybody know the answer to this?  Im sure each bank with have their own rules however, Im sure there will be a general overview, I just dont seem to be able to find one.  His intention is to make the company dormant for 12 months while he is employed somewhere else.  This will allow him to save some money that he can revinest into his dormant company and hopefully revive his business.  Any thoughts?

Replies (19)

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By David Ex
19th Oct 2021 11:34

TheAccountsHub wrote:

His question to me was, 'if he made the company dormant, would this make the repayments to his loan provider dormant also?'  Does anybody know the answer to this? 

I’d put money on the answer being “no”, but would have thought the loan documents give the terms and conditions.

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By DKB-Sheffield
19th Oct 2021 11:57

There's the possibilty of a 6 month pay as you grow holiday.

A full 12-month holiday due to dormancy - highly unlikely.

Also, check the terms of the BBL - will making the company 'dormant' invalidate the agreement?

Specifically on the 'dormancy' issue - will the company 'truly' be 'dormant' anyway (no significant transactions)? Would the BBL repayment (in itself) be a 'significant transaction'?

Finally, as the company is declared dormant on annual accounts (which one would assume to be made up to 12 months from now (or beyond), given the 'considering' element of the OP), how could future dormancy be proved to the BBL provider, if indeed, it would make any difference to repayments?

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By Paul Crowley
19th Oct 2021 12:35

This makes no sense

You do not make a company dormant, it either has no transactions at all and could be described as dormant, or it has transactions and is not dormant
The loan repayments are due unless bank agree
If director says company has ceased trading in conversation with bank, then loan will be called in and insolvency procedings will be commenced by bank.
If he chooses to work elsewhere but wants to keep company then just transfer money into company so that the company can make the repayments. It will only be about £300 so not much
How much does he expect to "save"

Critical issue is what he did with the money
Did he take it out and now owes the money to the company?
If so this will not end well

How can the company be dormant if interest is being charged?

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By thevaliant
19th Oct 2021 13:33

Paul is right.
You can't just shout, "This company is dormant!" and expect liabilities to go away.

I always look at it like a company can be dormant, or non-trading. They are not the same, nor are they mutually exclusive.
And dormancy or otherwise isn't decided by the shareholders or directors. It's decided by whether there are ANY transactions (not significant.... ANY transaction) at all.

A company is dormant if it has NO transactions at all except two. Payment of certain companies house fees [1] and issue of share capital.

If you have a loan, then by default, assuming that loan carries interest (and bounce back loans DO) then you can't be dormant. Even if you don't pay it, you can't be dormant because you SHOULD have paid it.

If you want a payment holiday, its got nothing to do with dormancy. Ring the bank and ask for a payment holiday.

[1] Comedy - it's possible to be dormant, yet have a P&L account to post transactions too. I've never seen it, but it is possible.

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By I'msorryIhaven'taclue
19th Oct 2021 13:33

TheAccountsHub wrote:

He has been advised by his current accountant to liquidate the business however, he wants to eventually repay the bounce back loan.  His question to me was, 'if he made the company dormant, would this make the repayments to his loan provider dormant also?'  Does anybody know the answer to this?

Is he asking you whether the bank might agree to freeze the loan if he doesn't pay the instalments?

Are we supposed to conclude that he is seeking a new accountant because he didn't much like his existing accountant's advice to liquidate his company?

Did your prospect use the BBL loan only to provide economic benefit to the business?

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ALISK
By atleastisoundknowledgable...
19th Oct 2021 15:01

I love it when people talk about ‘making the company dormant’. My response is always ‘tell me what you mean’. I

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Lisa Thomas
By Lisa Thomas - Insolvency Practitioner
19th Oct 2021 15:59

It's probably simpler just to negotiate a deal with the Bank - they will be more open to this if they genuinely believe they will be repaid after 12 months.

They can transfer their focus to other debtors in the meantime.

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Replying to Insolvency Practitioner:
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By Paul Crowley
19th Oct 2021 16:10

If I was the banker I would need some convincing.
Employee life is just so stress free
Who would really work a year saving money and then give it all to an insolvent company?

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Replying to Paul Crowley:
Lisa Thomas
By Lisa Thomas - Insolvency Practitioner
19th Oct 2021 16:35

The alternative to the Bank is to pay to liquidate in the court, which will take months and will cost several thousand pounds.

They have bigger fish to fry.

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Replying to Insolvency Practitioner:
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By I'msorryIhaven'taclue
19th Oct 2021 17:02

At what point is a bank able to adjudge that a debtor company isn't going to pay its BBL (and so set about recovering its cash from Boris & C0)?

Promising payment a year down the line seems quite a crafty way to create an impasse, and put the bank in limbo.

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Replying to I'msorryIhaven'taclue:
Lisa Thomas
By Lisa Thomas - Insolvency Practitioner
20th Oct 2021 10:25

I completely agree. I have seen stats that there are or will be c360,000 defaulted BBLs and the bank's need to start somewhere and my feeling is one's where payment is promised a little further down the line will be put on the back burner whilst they wade through others.

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By SXGuy
19th Oct 2021 18:03

I'd suggest that if the company is required to make transactions, as in repay the loan, it is not dormant.

Your thoughts re company being dormant is the wrong way round.

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By Leywood
20th Oct 2021 10:35

OP what do you think now that all these folk have responded to you? At the very least its worth some kind of acknowledgement.

What a ruse that would be, they would all be at it!

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By Irfa
30th May 2022 01:09

I have been a client same he got BPL loan , but his account or himslef file the dormant account s, the bank is asking about the 3 months trading bank statement when he was applied for the BPL, he is repaying the instalment on 10 years basis but now the bank is asking about to produce the documents at the time of BPL loan the company was trading ,
So whats options he can be avail to satisfy the bank , or how he can avoid this sitation. Any expert anwser will ve highly appreciated.
Thanks

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Replying to Irfa:
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By Paul Crowley
30th May 2022 03:03

Best to start a new thread
If you are not an accountant then best not pretend to be
No idea what BPL means. Bank Personal Loan? Or is it a Bounce Back Loan?
Santander?
Bank wants to know if the application was a fraudulent application.
Who got the money?
Sounds like it was a bit dubious if he or his account submitted dormant accounts.
Either way you need to do some Anti Money Laudering procedures if you really are an accountant or bookkeeper

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Replying to Irfa:
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By Tax Dragon
30th May 2022 05:55

Congratulations on posting something that makes even less sense than the OP. I was confused before I made it to the first comma.

But FWIW a loan is repayable (ask any EBT trustee). Bank will want its money back one way or another.

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Replying to Irfa:
Lisa Thomas
By Lisa Thomas - Insolvency Practitioner
30th May 2022 09:31

He needs to provide the bank with whatever information they have asked for.

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Replying to Irfa:
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By Leywood
30th May 2022 10:53

Irfa wrote:

or how he can avoid this sitation.

Seriously?

Ignore the Bank. You think that will help you?

1st of 2 daft dormant questions today.

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Replying to Leywood:
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By Tax Dragon
30th May 2022 11:03

Could he not avoid it by repaying the debt?

I guess that depends (there may potentially still be questions to answer), but it's the best I can come up with.

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