What should they have known first?

As we’ve recently reported, the level of bounce back loan fraud is increasing with more directors looking to strike off or dissolve their companies to avoid repaying the loans and other lawfully accrued debts to creditors.

The 100% government backed bounce back loan scheme was part of a range of measures introduced in 2020 after the Covid -19 pandemic forced the country into lockdown. 

Unfortunately, some unscrupulous directors began to look for loopholes in the rules, such as claiming false furlough payments and defrauding the government’s Covid support packages that were meant to help businesses. 

In an effort to crackdown on those who abused the UK government’s pandemic support packages, ministers introduced legislation last December that gave the Insolvency Service additional powers to investigate and sanction directors that abused the systems to escape their creditors.

Business minister Lord Callanan said: “The government provided unprecedented support to businesses to help them through the pandemic, but unfortunately a minority of people abused this support for personal gain and they should now be clear that we will not tolerate those who seek to defraud the taxpayer.”

He was speaking after the Insolvency Service revealed details of four directors being disqualified after they all secured bounce back loans before dissolving their companies to avoid paying their liabilities back. 

There were over 1.4 million small and medium businesses who chose to take out bounce back loans to help them survive the lockdowns, with up to £50,000 offered interest free for over a year. 

The government provided full guarantees for banks on about £46bn of these emergency loans, but with few checks on eligibility the scheme was open to exploitation by fraudsters. 

As we’ve reported previously, the Insolvency Service is just one of several agencies that the government has tasked to pursue the outstanding billions owed. But they are balancing this work next to a lack of resources compared to other agencies chasing the overall abuse of coronavirus schemes. 

They are having some successes, however. 

Between March 2021 and May 2022, the Insolvency service reported that it disqualified at least 162 directors following allegations they abused Covid-19 support programmes. 

Originally they were limited to using formal legal and insolvency processes such as court led winding up petitions of companies. 

However, the new powers contained in The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act, which became law in December 2021 extended the Insolvency Service’s investigatory powers on behalf of the Business Secretary, to directors of dissolved companies to allow them to investigate directors without the need to launch a formal insolvency process. 

These can carry serious consequences for directors who have improperly used or obtained funds, or have been able to dissolve their business with outstanding debts. 

These directors can face sanctions including being disqualified as a company director for up to 15 years or, in the most serious of cases, prosecution. 

Chris Horner, insolvency director with BusinessRescueExpert, said: “BBLS repayments are catching a lot of businesses out that would have expected to be performing better or at least up to their pre-pandemic levels.”

“The bounce back loan and other support measures were important at the time and undoubtedly helped many businesses to stay afloat under the most trying of circumstances, but now these measures have gone and businesses have tough decisions to make if they are having trouble servicing outstanding debts incurred during the pandemic.”

“Dissolution is only to be used by solvent businesses that can pay off their debts within 12 months otherwise directors could be in trouble.”

“It’s most likely that a business with an outstanding bounce back loan would need to consider a CVL, but only after taking professional advice and exploring the options available”

We offer a free initial consultation to any business owner or director who is concerned about the future of their business whether they have an outstanding bounce back loan or not. 

Once our expert advisors have a clearer understanding of the unique factors and situation of the business, they will be able to go through all the options available – that will probably be more than you originally thought you had, especially if your business is already having trouble meeting all your obligations. 

The sooner you get in touch and get advice, the quicker you will be able to activate your recovery plan – which could start today if you click the link above and book your session now!