A bounce back loan taken out by a limited company is a company debt, so a director does not have to repay it personally just because the company cannot. Personal consequences follow when the loan was obtained or used improperly: a liquidator can sue for misapplied money, the Insolvency Service can seek disqualification and compensation, and false applications can be prosecuted as fraud. Sole traders are in a different position because the loan was theirs all along.

What was the Bounce Back Loan Scheme?

The scheme let small and medium sized businesses borrow between £2,000 and 25% of turnover, up to a maximum of £50,000. GOV.UK guidance at the time explained that the government guaranteed 100% of the loan to the lender, there were no fees or interest for the first 12 months, and interest was 2.5% a year after that. The loan term was 6 years and early repayment carried no fee. To be eligible a business had to be based in the UK, have been established before 1 March 2020 and have been adversely affected by coronavirus. Applicants completed a short online form and self declared that they were eligible, and the guidance stated that the borrower would be responsible for repaying 100% of the amount borrowed. The scheme closed to new applications and top ups on 31 March 2021.

Before the first repayment, lenders were to offer “Pay as you Grow” options: extending the term to 10 years, moving to interest only payments for 6 months (up to three times), and pausing repayments for 6 months once.

Is a director personally liable to repay the company’s loan?

Not by default. The Insolvency Service’s director information hub lists loans in the name of the company as company debts, and says directors are responsible for company debts they have personally guaranteed and in some other circumstances, many associated with wrongdoing. Whether a director gave any guarantee or other personal undertaking depends on the documents actually signed with the lender; see directors’ personal guarantees.

If the company fails, the loan is dealt with in its insolvency like its other debts, and any shortfall is not passed to the directors simply because they ran the company. The general rules are in when directors are personally liable for company debts. A sole trader or partner who borrowed in their own name is liable for the loan personally. In 2025/26 the Insolvency Service obtained 55 bankruptcy or debt relief restrictions in England and Wales in cases involving COVID 19 support scheme abuse allegations.

What turns an unpaid loan into a personal problem?

The trouble starts with how the money was obtained and spent. Problems typically arise from:

  • A false application: overstating turnover to borrow more than 25% or applying for a business that was not established before 1 March 2020.
  • Personal use: moving the money to the director or family, paying personal bills, or recording it as a loan to the director that is never repaid.
  • Stripping and dissolving: taking the money out and then striking the company off so that no liquidator ever looks. The explanatory notes to the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 say extending investigation powers to dissolved companies was meant to discourage using dissolution to avoid repaying government backed loans such as bounce back loans; see investigations into directors of dissolved companies.
  • Preferring creditors: using the loan to repay a director’s own loan account or a personally guaranteed overdraft just before insolvency.

What can a liquidator recover from the director?

A liquidator acts for the creditors, including the lender, and has several routes to the director personally:

  • Misfeasance: section 212 of the Insolvency Act 1986 lets the court compel an officer who has misapplied or retained company money, or breached a duty, to repay it with interest or contribute compensation; see misfeasance claims.
  • An overdrawn loan account: money taken as a “loan” is an asset the liquidator collects; see overdrawn director’s loan account in liquidation.
  • Preferences and transactions at an undervalue: payments to connected people or assets transferred cheaply can be reversed under sections 238 to 241.
  • Fraudulent or wrongful trading: contributions under sections 213 and 214 where trading continued improperly.

Can the director be disqualified or ordered to pay compensation?

Yes, and scheme abuse now dominates the Insolvency Service’s disqualification work. Its enforcement management information for 2025/26 records 1,044 disqualifications under section 6 of the Company Directors Disqualification Act 1986 in Great Britain, of which 773 involved allegations of COVID 19 financial support scheme abuse, with an average length of 9.4 years for those cases against 8.1 years for all disqualifications. Section 6 applies to directors of insolvent companies and, since the 2021 Act, of companies dissolved without becoming insolvent, with a ban of 2 to 15 years.

A disqualified director can also face a compensation order or undertaking under section 15A where the conduct caused loss to creditors of an insolvent or dissolved company. The Secretary of State must apply within 2 years of the disqualification. In 2025/26 the Insolvency Service obtained 125 compensation orders and undertakings worth about £4.5 million across all types of case.

Can misuse be a criminal offence?

A knowingly false statement in the application can be fraud by false representation, one of the ways of committing fraud under section 1 of the Fraud Act 2006. The maximum sentence on indictment is 10 years’ imprisonment, a fine or both. The Insolvency Service’s figures show 81 defendants convicted after its criminal investigations in 2025/26, 31 of them in cases relating to COVID 19 financial support scheme abuse. Criminal action does not depend on disqualification; the Insolvency Service states that disqualification does not prevent any other civil or criminal action.

What if the business genuinely could not repay?

Failing to repay is not misconduct in itself. A director whose company used the loan for the business and then ran out of money is in the same position as with any other loan: consider the Pay as you Grow options and other arrangements, take advice early, and if the company is insolvent treat creditors equally. The Insolvency Service’s guidance says directors of an insolvent company must not prioritise themselves or connected parties, favour particular suppliers or repay personally guaranteed debts ahead of other creditors. A creditors’ voluntary liquidation brings in an independent liquidator and the conduct report that goes with it, which is far safer than strike off.

How might this look in practice?

Illustration only. Rowan Ltd had turnover of £80,000 and borrowed £20,000, which is 25% of turnover. It spent £12,000 on stock and wages and paid £8,000 to the director’s personal account, recorded as a director’s loan. The company later entered creditors’ voluntary liquidation owing the lender £18,000. The £12,000 spent on the business raises no personal issue. The £8,000 is an overdrawn loan account the liquidator will demand, and the conduct report will mention it. If the director had claimed turnover of £200,000 to borrow £50,000, the false declaration could lead to disqualification, a compensation claim and a referral for criminal investigation.

What mistakes do directors make?

  • Treating the loan as personal money because no personal guarantee was signed.
  • Applying to strike off the company with the loan outstanding, which is the pattern the dissolved company powers were designed to catch.
  • Using the money to repay their own loan account or a guaranteed overdraft just before the company fails.
  • Keeping poor records of how the money was spent, which leaves the liquidator and investigators to draw their own conclusions.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.