Is the endgame for bounce back loan arrears now in sight?
The report found that although essential, the government’s overall response to the pandemic had exposed the taxpayer to significant financial risk for the foreseeable future and that while departments faced difficulties in responding quickly to the pandemic, these risks did not always achieve good value for money.
The committee singled out the bounce back loan scheme as one of the programmes with a high level of risk reporting an estimated £26 billion of credit and fraud losses uncovered so far.
Dame Meg Hillier MP, Chair of the Committee, said: “With eye-watering sums of money spent on Covid-19 measures so far the government needs to be clear, now, how this will be managed going forward, and over what period.
“The ongoing risk to the taxpayer will run for 20 years on things like recovery loans, let alone the other new risks that departments across government must quickly learn to manage.
“If coronavirus is with us for a long time, the financial hangover could leave future generations with a big headache.”
Among the main conclusions and recommendations in the report are:
- The Covid-19 response means the government will be exposed to significant financial risks for decades to come
- The Treasury should develop a single cross-government framework for monitoring and managing the risks to public finances stemming from the government’s Covid-19 response. HM Treasury should explain in the autumn Spending Review how it plans to manage these risks and any fiscal trade-offs that will need to be made
- The total value of government-backed loans (including bounce back loans) had increased greatly during the crisis. Through the autumn Spending Review, the Treasury should set out how it is managing the significant expansion of the value of government loan guarantees and the associated risk of write-offs and the steps being taken to reclaim the taxpayer’s investment.
The report also highlighted the work of the National Audit Office’s (NAO) Covid-19 cost tracker which tracked expenditure and costs across the whole of government and pulled them together in one place.
The NAO are working on a follow-up to their October 2020 report specifically into the bounce back loan scheme.
It is scheduled to be published in the winter of 2021 and will update their findings on the overall amount of bounce back loan arrears that have been repaid to date and how much remains outstanding.
We’ve been reporting on bounce back loan arrears and repayment scenarios since April including regional and industry differences so know that whatever number they come up with, it’s going to be big and focus will then shift from data collation to debt recovery.
HMRC and the Insolvency Service are going to be very busy for the rest of 2021.
They are already using their existing powers to close down businesses and sole traders who falsely obtained bounce back loans and are turning their attention to companies who took them out legitimately but have built up arrears.
A recent FOI inquiry from BusinessRescueExpert.co.uk revealed that they are being helped by the Department of Business, Energy and Industrial Strategy (BEIS) who are objecting to companies with bounce back loans from being struck off the Companies House register.
And the final piece of the enforcement jigsaw is still to come with the introduction of The Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill which is proceeding through parliament at the moment and expected to become law before the end of the year.
Amongst the new powers it will grant The Insolvency Service retrospective powers to investigate the directors of companies that have been struck off to examine the circumstances of the dissolution.
Because the powers are retrospective, they can go back two or three years after the fact and are not limited to bounce back loans but other debts too.
Any director targeted under the new law could reasonably expect sanctions including fines, disqualification of up to 15 years and potentially being made personally liable for repaying any illegally obtained debts and costs incurred.
With the remaining government support measures being withdrawn at the end of September and creditors actions such as statutory demands and winding up petitions being allowed to be issued once again, businesses with outstanding bounce back loans and other debts including VAT arrears or unpaid rent or business rates will be understandably worried.
Instead of wondering when and where the first creditors’ blow will land, directors and business owners can use this time to draw up their own counter strategies starting with some professional insolvency advice.
During a free initial consultation, we will better understand the situation facing a business and give our honest appraisal of the options available, depending on what they would like to do.
Some businesses might want or be able to restructure their debts and eventually trade their way back to profitability with creditors help and forbearance through a company voluntary arrangement (CVA).
An alternative option might be a company voluntary liquidation (CVL) if there is no realistic path to recovery.
This will allow the orderly closure of a business even if it has bounce back loan debt and other outstanding arrears that it can’t reasonably clear.
There are choices and chances that can be taken – but only if the directors or business owners act in time to access them and work with us to act on them.