Statistics show how widespread the issue is

New figures released from the Insolvency Service show that in the past 15 months, over half of all directors disqualified were accused of fraud or other abuse of coronavirus support schemes.

Between April 1 2022 and June 30 2023, 1,200 directors have been disqualified with 611 involving bounce back loan scheme offences. A further 141 were disqualified for misconduct related to other schemes including the local authority grant scheme, job retention schemes and others.  

To date the Insolvency Service have prosecuted nine directors for BBLS related offences.

A spokesperson for the Insolvency Service said: “Tackling Covid loan abuse forms a large part of our enforcement work, and to date we have already disqualified 752 directors, driving recovery of funds. Criminal prosecutions, where there is a higher bar and cases take longer to prepare, are also being brought forward. 

“Abuse of Covide loan support schemes affects us all. Company directors who abused schemes that made taxpayer funds available to help genuine businesses during the pandemic have shortchanged the public purse and reduced the funds available to properly support vital public services.”

The bounce back loan scheme (BBLS) was set up in 2020 as a quick, in every sense, solution to the effects that the impending coronavirus lockdowns would have on businesses. 

SMEs could borrow up to a maximum of £50,000 from accredited lenders that were 100% guaranteed for repayment by the government in the last resort. 

This, along with the relaxation of usual oversight and security checks for borrowers, was implemented to ensure the speedy take up and processing of the loans. 

According to the National Audit Office (NAO) a total of £46.5 billion was paid out through 1,531,095 loans.  The majority (58%) were for the maximum amount of £50,000 while the average total borrowed was £30,000.

Unfortunately and as we now know, the economy didn’t just dip for a few months before returning to normal.

We saw a once-in-a-century series of lockdowns along with other temporary and permanent changes to customer behaviour which meant that thousands of companies that have survived so far still haven’t recovered to 2020 levels of economic activity.

Now in 2023, the bounce back loan scheme has gone from being an essential lifeline into an anchor dragging their business down for many directors along with other negative economic factors they are having to contend with such as inflation and increasing interest rates. 

The monthly repayments are becoming more onerous as turnover drops and profits become losses and to add insult to injury, the NAO reports that just over 10% of the amount lent (£4.9 billion) has probably been lost to fraud and another £12.1 billion would be unlikely to be recovered. 

Chris Horner, insolvency director with BusinessRescueExpert, said: “While investigations into directors actions are a necessary requirement of a creditors voluntary liquidation process, they shouldn’t automatically be feared. 

“Obviously if you’re doing fraudulent or illegal activity then you would not want any scrutiny but for the vast majority of directors that are running their businesses legally and properly, they could be an unnecessary cause of stress.

“In many cases they provide the context and rationale for decisions that were taken which will explain what happened, when and why and as long as there is no criminal activity or intent then the Insolvency Service will usually accept this version if the insolvency practitioner agrees.

“It’s essential then that as many decisions taken as possible are properly documented so these can be referred to later if the business does engage in an insolvency process. 

“Keeping a close eye on the financial position of the business especially if there are any sudden downturns is an essential task for any director as is seeking out some impartial, professional advice if there are signs of potential trouble ahead.”

We’ve written previously about bounce back loan fraud and why it’s been so hard for businesses to keep up with their repayments. 

Even if you are managing to keep on top of your arrears or don’t have a bounce back loan to contend with, there could be many other factors that are holding your business back and stopping it from achieving its full potential. 

This is why we offer a free initial consultation for any business owner or director with one of our team of expert advisors. 

They will outline in detail what options are available to them to restructure or rescue their business. Alternatively if closure is on the agenda then they will go through all the efficient and effective procedures available. 

No matter what issues are facing you and your business, we can help you find the ideal solution.