Bounce Back Loan and the Director Dies: Who Repays It?

The bounce back loan belongs to the company, not to the director who died and not to their family. Nobody in that family has to repay it out of their own money, and there is nothing for the estate to settle, because lenders were not allowed to take personal guarantees under the scheme. If a bank has written to a widow or a son asking them to clear the balance personally, that letter is wrong and should be challenged in writing.

What happens to the loan is settled by company law rather than by the will, and it does not disappear. The company still owes it for as long as the company exists. The government guarantee sitting behind the scheme protects the lender if the company cannot pay; it does not cancel the debt and it is not a write-off triggered by a death. So the practical question after a sole director dies is rarely "who repays it" and almost always "who is left with the authority to run the company at all" — because until somebody has that authority, nothing can be paid, decided or wound up.

That is the problem this page deals with: the gap between a company that still owes money and a company that has nobody able to sign for it.

The short answer: the company owes it

A limited company is a separate legal person. It signs its own contracts, holds its own bank account and owes its own debts. When a director dies, the company does not die with them, and the company's borrowing does not transfer to anybody's estate. It stays exactly where it was.

That separation is the whole point of incorporating, and it is why the answer here differs so sharply from the answer for a sole trader or a partner. A sole trader and their business are the same legal person, so business debts are personal debts and they follow the estate. A partner's position is different again, and often much worse than families expect — we set that out in whether a surviving partner is liable for the partnership's debts. A director of a limited company, though, is in the cleanest position of the three where the borrowing was properly the company's.

So if the letters arriving are addressed to the company, they are addressed correctly, and they need answering by whoever ends up running the company. If they are addressed to the deceased personally, or to a relative, ask the lender to state the document it says creates a personal liability. Under the bounce back loan scheme, in almost every case, there will not be one.

Why there is nothing for the estate to pay

Bounce back loans were deliberately designed to be quick and light on security. Lenders were not permitted to take personal guarantees, and they were not permitted to take a charge over the borrower's home. The application was made by the business, on the business's declaration, and the lending decision rested on the government guarantee rather than on the director's personal covenant.

That matters enormously now, because a personal guarantee is the usual mechanism by which company debt reaches a family. Where a director has guaranteed a company overdraft, an equipment lease or a commercial rent, the guarantee is a personal contract and it survives the guarantor's death as a debt of the estate. Under this particular scheme there is normally no such contract.

Two qualifications are worth being precise about.

• Other borrowing is not covered by the same rule. The larger coronavirus lending schemes allowed personal guarantees above a threshold, and ordinary commercial facilities almost always come with one. Do not assume every facility in the company's name is guarantee-free — check each agreement, and look for a separate deed of guarantee rather than a clause in the loan itself.
• Money taken out of the company can be clawed back. If bounce back loan money was drawn down and used personally, it may sit in the company's books as an overdrawn director's loan account. That is a debt owed by the director to the company, and a liquidator can pursue the estate for it. The scheme protects a family from the bank; it does not protect them from the company's own claim.

The scheme rules also set the interest position and the term, and those follow the loan rather than the borrower: a fixed rate of 2.5% a year, no interest or repayments for the first twelve months, a six-year term extendable to ten under the Pay As You Grow options, a maximum of 25% of turnover capped at £50,000, and a 100% government guarantee to the lender.

Source: British Business Bank, Bounce Back Loan Scheme scheme information, and HM Government scheme guidance published on GOV.UK.

What the government guarantee does and does not do

This is the single most misread part of the scheme, and the misreading always runs the same way: someone hears "100% government-backed" and concludes the taxpayer has already paid it, so nothing needs doing.

The guarantee is a promise to the lender, not to the borrower. If the company cannot repay, the lender can claim the balance from government. Nothing in that arrangement forgives the company. While the company is trading it must keep paying, and if it stops paying the lender behaves largely as any lender would: reminders, default, and referral to a recoveries team.

What the guarantee does change is the tone of the recovery. Because the lender is protected, there is generally no secured asset to seize and no personal guarantor to pursue, so a claim under the guarantee is usually the practical endpoint once a company has genuinely stopped. That is very different from a facility with a charge over premises, or a hire purchase agreement where the goods can be taken back — which is the situation described in the finance firm took the car and wants a shortfall.

It is worth saying plainly: none of this makes the money nobody's problem. Public money was lent, and the recovery of it after a business fails is a matter for the lender and government, not something a family should try to settle out of their own pocket.

When the sole director dies, the company stops being able to act

Here is the real emergency, and it is procedural rather than financial. A company with no directors cannot authorise anything. The bank mandate falls away. Payments cannot be approved, staff cannot be paid, invoices cannot be raised, and the accountant cannot file. Suppliers keep supplying for a fortnight and then stop.

The route out depends on the company's articles of association, so that is the first document to find.

Most companies incorporated since October 2009 use the Model Articles, which contain a provision for exactly this situation: where the company has no shareholders and no directors as a result of a death, the personal representatives of the last shareholder to have died may appoint a director by notice in writing. In practice that means somebody has to obtain a grant of probate or letters of administration first, and the timing of that is the bottleneck. Older companies using the previous Table A articles, or bespoke articles, may not have an equivalent clause, and in that case an application to court may be needed.

If there was more than one director, none of this applies and the position is far easier — the surviving director can usually continue, subject to any quorum requirement in the articles. We have written that up separately in a director died but there are two of you.

The practical order of work for a sole-director company is usually: locate the articles and the shareholder register, tell the bank and ask what it needs, tell the lender the position in writing, apply for the grant, appoint a director, then decide whether the company trades on or closes. Telling the bank early is not a formality — banks review business facilities hard after a death, and an overdraft can be reduced or removed within days, which is the subject of the bank pulled our overdraft after the key earner died.

If the company stops trading

Where the business cannot continue without the person who ran it, the company has to be closed, and how it is closed matters.

Liquidation. Where a company cannot pay its debts, the usual route is a creditors' voluntary liquidation. A licensed insolvency practitioner is appointed, collects the assets, and pays creditors in the statutory order. A bounce back loan sits with the ordinary unsecured creditors, behind secured lenders and preferential claims such as employees' wage arrears within limits and certain taxes. If there is nothing left, the lender claims under the guarantee.

Dissolution by strike-off. Applying to strike a company off the register is cheap and quick, and it is the wrong tool for a company that still owes money. Creditors are notified and can object, government departments do object where a bounce back loan is outstanding, and a struck-off company can be restored so that its affairs can be investigated. Directors who dissolve a company to escape a bounce back loan can also be pursued personally by the Insolvency Service, which has powers to seek disqualification and, in some cases, a compensation order. That risk falls on a living director who signs the application, not on the person who died.

Take advice from an insolvency practitioner before doing either. The advice is normally paid for by the company, and it costs far less than unwinding a dissolution afterwards. A liquidator will also want to know what the company is owed and what it has tied up elsewhere — retentions held by customers, and deposits sitting with landlords or utility suppliers, are assets of the company that nobody thinks to chase in the middle of a bereavement. The same question arises for a home, and is answered in does the deposit come back when a tenant dies.

Where the loss actually lands on the family

Not on the loan. On everything the company was going to pay them.

A sole director's household usually depends on the company for salary, dividends and, often, the value of the shares. When the director dies, all three stop at once. The shares pass under the will or the intestacy rules, but a share in a company that has lost the only person who could run it may be worth very little, and it cannot be turned into cash quickly. Meanwhile the mortgage payments, the school costs and the household bills continue on their normal dates.

That is the gap business protection is built for. Life cover written on a director, held in the right hands, puts money where it is needed rather than where the paperwork happens to send it. Broadly, three arrangements do different jobs: cover held by the company to repay company borrowing or to fund a period without its key person; a cross-option or share purchase arrangement funded by policies so the surviving shareholders can buy the shares and the family receives money instead of a stake they cannot sell; and personal cover written in trust so the household has money that does not wait for probate and is outside the reach of creditors.

The right structure depends on who owns what and how the company is set up, and it is worth having an FCA-authorised broker look at the actual shareholding rather than guessing. If you are reading this because you have realised your own company has none of it in place, you can get life insurance quotes and have the business and personal sides looked at together. What an insurer will accept and on what terms is always a matter for underwriting, and no policy can be promised in advance.

Related debts that behave differently

Families dealing with one company debt usually find several, and they do not all follow the same rule. It is worth separating them early.

Debts in the company's name with no guarantee — trade accounts, unsecured facilities, the bounce back loan — stay with the company. Debts the director guaranteed personally follow the estate. Debts secured on an asset let the lender take the asset back and chase any shortfall, which is how car and van finance usually works. Contract debts owed personally, such as a car lease taken in the director's own name, are a matter for the estate and the finance house together, and the ending of one is explained in ending a car lease after the driver dies.

Ordinary consumer credit in the deceased's own name — cards, catalogue accounts, buy now pay later — is estate debt too, and the collection behaviour around it is covered in catalogue debt after a death. If a household loan involved the property, and the borrower's share was part of a scheme rather than a straightforward mortgage, the mechanics are different again and are set out in the Help to Buy equity loan when a partner dies. The full map of which debts die with a person and which survive is in our guide to debt, credit and finance after a death.

Scotland and Northern Ireland

Company law is largely UK-wide. The Companies Act 2006 applies across Great Britain and Northern Ireland, Companies House registers companies in all three jurisdictions, and the bounce back loan scheme rules were the same wherever the business was based. So the core answer — the company owes it, the estate does not — holds everywhere.

The differences are in the surrounding processes. Corporate insolvency in Northern Ireland runs under its own legislation and its own official receiver arrangements, and Scottish corporate insolvency has its own procedural rules and court involvement. Estate administration differs too: in Scotland the shares pass through confirmation rather than probate, and the executor is confirmed to a listed inventory of assets, while Northern Ireland has its own probate office and rules. If the appointment of a new director depends on the personal representatives acting, the timetable for getting that authority is set by the local process, so it is worth asking a solicitor early how long it currently takes where the death was registered.

Frequently asked questions

Are a director's family liable for a bounce back loan?

No. Bounce back loans were made to the business, and lenders were not permitted to take personal guarantees for them, so there is normally nothing to claim from a deceased director's estate. The liability stays with the company for as long as the company continues to exist. Ask any lender writing to a relative personally to identify the document it says makes them liable.

Does the government guarantee mean the loan is written off on death?

No. The guarantee protects the lender if the company cannot repay; it does not cancel the company's obligation to pay. The company must keep up the payments while it trades. If it is wound up still owing the money, the lender claims under the guarantee rather than pursuing the family.

What happens to the loan if the company stops trading after the director dies?

The company is usually placed into liquidation, or in some cases dissolved. A liquidator collects any assets and pays creditors in the statutory order, and the loan ranks with the other unsecured debts. Take advice before dissolving a company that still owes money, because a strike-off can be objected to and reversed.