When are directors personally liable for bounce back loans?


19 August 2021

By Josh Fresle

Directors owe certain fiduciary duties to a company. Breaching these duties could result in significant penalties.

If a director removes a bounce back loan from the company’s account and uses it for personal expenses this will breach their fiduciary duties to the company and may even be deemed as fraud. The director would likely be personally liable for the company’s debt if the company are unable to pay back the loan. Further, it is possible that the director could be barred from acting as a company director.

Directors should also exercise caution when deciding to pay off company debts using bounce back loans as soon as funds are available, if this would result in prioritising one creditor over others. If the company then entered insolvency proceedings, this type of transaction could be reversed by a liquidator. A director will likely not be personally liable for the company’s debts in this scenario, although there may still be some negative impact.

Directors should exercise caution in how they use bounce back loans, especially as it has been estimated that only 60% of companies will be able to repay the loans. As a result, there could be increased scrutiny of directors.

This is not legal advice; it is intended to provide information of general interest about current legal issues.