The insolvency service have revealed that the number of directors’ disqualifications for bounce back loan scheme abuse has increased 80% in the last financial year. 

From April 2023 to March 2024, 831 directors were banned for an average length of nine and a half years. 

Dean Beale, Chief Executive of the Insolvency Service said: “Tackling bounce black loan misconduct is a key priority for the Insolvency Service and we are determined to use all our available powers to remove rogue company directors from the corporate arena. 

“It is important the Insolvency Service is taking such robust action to clamp down on directors who abused Covid support schemes and took from the public purse during the worst global pandemic for 100 years. 

“We have teams dedicated solely to investigating bounce back loan misconduct that are committed to taking action against those who provided misleading information to receive money they were not entitled to.” 

Thousands of SME companies borrowed up to 25% of their turnover up to a maximum of £50,000 between 2020 and 2021 to help them survive the economic turmoil created by the pandemic.

The loans had to be for the economic benefit of the business and not for any personal purposes. 

Enforcement action taken against those found to have abused the support schemes has ranged from companies being wound-up in court to director’s disqualifications, compensation orders and criminal convictions. 

To date the Insolvency Service has successfully applied to have 1,430 directors banned for abusing Covid support schemes since they began their investigations into potential financial wrongdoing in 2021. 

There were 140 director disqualifications in 2021/22 and 459 in 2022/23 along with the 831 from the latest financial year.

According to the National Audit Office (NAO), a total of £46.5 billion was paid out through 1,531,095 bounce back loans. 

The majority (58%) taken out were for the maximum amount of £50,000 while the average total borrowed was £30,000. 

The NAO estimates that just over 10% of the total amount borrowed (£4.9 billion) has most likely been lost to fraud and another £12.1 billion is unlikely to ever be recovered. This £17 billion loss explains why HMRC and the Insolvency Service are being proactive in their attempts to recover any arrears.

Personal liability for bounce back loans

One of the reasons for the popularity of bounce back loans was the relatively straightforward application process and no need for directors to provide personal guarantees as may be the case with other business loans. 

This remains the case even if a business closes because the lender would still be able to claim their money back from the government as it was 100% guaranteed. 

The exception to this is that if the Insolvency Service can prove that a bounce back loan was either obtained fraudulently or used for fraudulent purposes then the director would be made personally liable following the liquidation of a company. 

Can you close a company if it has an outstanding bounce back loan?

For many directors that fulfil their statutory obligations and do everything the right way – there’s good news. It is possible for a business with outstanding bounce back loan arrears and other debts to be legally closed and liquidated. 

A bounce back loan is classed as unsecured debt. During a formal method of insolvency such as a creditors’ voluntary liquidation (CVL), this and all other unsecured debts will be written off providing that certain other conditions are met such as no criminal behaviour or personal guarantees attached. 

A licensed insolvency practitioner has to be appointed to oversee a CVL procedure where they will organise, arrange and dispose of any remaining assets of a business. These funds will then be used to repay creditors in their correct legal order before a business can be formally closed. 

Directors are then able to move onto their next venture without any historic debt moving with them. 

Alternatively, if the business is being held back by bounce back loan arrears and other historic debts and is otherwise fundamentally viable then there could be other strategies than closure. 

Administration or a company voluntary arrangement (CVA) could allow a business to make the necessary changes and restructuring to be able to make bounce back loan and other debt repayments and eventually generate enough profit to continue running the business as a going concern.

Nobody who took out a bounce back loan in 2020 or 2021 would imagine that they would be struggling to repay it in 2024 but if the past few years have taught us anything it’s that there is no new normal. 

Many otherwise profitable and perfectly sound companies are struggling to stay afloat, through no fault of their own, due to accumulated Covid era debt and changing customer behaviours and markets. 

These are just some of the reasons why we offer a free initial consultation to any business owner or director who needs or wants one. 

We’ll honestly appraise your situation and prospects and advise you on the best way forward in language you can understand. If closure through liquidation is the best option or if there is a way for the business to restructure and recover – we’ll tell you straight. 

While we promise we’ll always be honest and direct with you about your situation, the final decision is always yours including the most important choice – to get in touch and arrange that call.