Bounce back loans scheme abuse: Are we heading for a spike in director disqualifications?
According to statistics published by The Insolvency Service, in the six months from April 2023 to September 2023, 66% of director disqualifications in the UK were connected to the abuse of pandemic financial support programs, particularly the Bounce Back Loans (BBL) scheme.
Under the BBL scheme, borrowers could secure loans of up to £50,000 without having to sign a personal guarantee, simply by completing an online application and self-declaring that they met the eligibility criteria.
The majority of directors did act responsibly but there have been varying degrees of abuse of the scheme, ranging from criminal misconduct to personal gain. The minimal checks have been cited as one of the reasons such abuse was allowed to thrive.
Director disqualifications as a result of abuse
It is estimated that around 25% of UK businesses benefited from the bounce back loans scheme but many directors who claimed funds have since been disqualified by the Insolvency Service for abusing the support schemes.
According to figures published in the Department for Business, Energy and Industrial Strategy’s annual accounts the government estimates losses from fraud and error associated with the BBL scheme amount to £1.1bn (the initial estimate was £4.7bn).
There were 1,200 directors disqualified between 1 April 2022 and 30 June 2023, with 611 of the cases involving abuse of Covid-19 schemes, mostly in relation to BBLs.
Realistically, how likely is it that HMRC or The Insolvency Service continue to pursue directors?
The Insolvency Service is actively pursuing criminal prosecutions in many cases under the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill, which was introduced back in 2021.
There have been high-profile cases of BBL fraud reported widely in the media, with agencies including HMRC and The Insolvency Services aiming to make an example of people who exploited the scheme.
In one notable case of BBL fraud, 11 companies claimed £500,000 before transferring the funds to entities in Hong Kong. These companies, supposedly operating out of London, Berkshire, Lancashire, and Shropshire, apparently had trading premises, and it still remains unclear if they ever even conducted any business.
Additional funding for The Insolvency Service
In order to support strategic investment and investigation efforts, the Insolvency Service received over £100m in additional funding, with the intention of bringing more directors to justice.
So, undoubtedly, hundreds, and possibly thousands of directors will receive letters about BBLs over the coming months, and with this in mind we could be heading towards a spike in director disqualifications in 2024.
Get in touch
If you are concerned about anything in this article, please take advice early, whether it is in relation to your duties as a director, concerns you have in relation to your company’s financial affairs, your ability to repay your bounce back loans or if you have been contacted by the Insolvency Service.
There are a multitude of ways of turning around a business in financial distress which may involve creditor negotiations, refinancing, or a complete restructure of its operations. The earlier you get advice the more options you will have available.
The information was correct at time of publishing but may now be out of date.