Our thanks to Northpoint, specialists in recovery, restructuring and insolvency services for this update on fraudulent claims relating to the Bounce Back Loans scheme.
A year has elapsed since we considered the implications and options for companies that needed assistance and further time to pay in relation to BBLs and other government loans made in response to the COVID-19 pandemic (“Pandemic”).
Things have moved at pace and the latest figures available, for the year to 31 July 2022, state that £46.6bn had been applied for and taken by companies under the Bounce Back Loan Scheme. Duly authorised lenders (“Lenders”) state that when loans were applied for, checks were put in place to assist in detecting fraudulent claims. Lenders report preventing over £2.2bn worth of fraudulent loans as a result of these checks. Notwithstanding this, fraudulent claims were still made and the Government in conjunction with the Insolvency Service and National Investigation Service (“NIS”) have set in place stringent checks to ensure that claims are made against directors and other individuals who have abused the system.
We will consider what checks have been put in place below.
According to the latest data released by the Government, to 31 July 2022, NIS, has opened 273 investigations into BBL fraud since September 2020, with a total value of £160 million. 78 suspects have been dealt with to date, with 49 arrests made. Meanwhile, the Insolvency Service’s work has so far resulted in 242 director disqualifications, 101 bankruptcy restriction orders and 1 criminal prosecution.
The Department for Business Energy & Industrial Strategy (“BEIS”) estimate that, as of 31 March 2021, £17bn of loans will not be repaid, and that £4.9bn of these were fraudulent.
So, now let’s consider what have the Government, where there has been misuse and fraudulent claims, have put in place and what this means for directors?
At the end of 2021 the Insolvency Service were given additional powers under Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021. The Act allows the Insolvency Service to take action against directors whose companies were insolvent but did not go through the traditional insolvency routes of Liquidation or Administration, instead allowing the companies to be struck off, whether that be for non-filing of accounts and confirmation statements, or by applying for them to be struck off. The Insolvency Service can now seek to apply for disqualification of the directors and seek compensation orders for the full BBL amount, plus interest.
Where a company has entered into insolvency proceedings, the Insolvency Service seem to be taking harsh action to disqualify directors for long periods, especially where they have breached their duties relating to financing and BBLs.
There has been a lot of discussion in the business media about a 10 year ban against a director in relation to a claim for a BBL, where a claim of £19,229 more than the Company was entitled to was sought and paid to the Company; compare this with Carillion where a payment of a non-justified dividend of £54.4m was made impacting all creditors and the disqualification was 11 years, only 1 year longer than that relating to a £19,229 BBL fraud affecting a Lender.
Where actions can be taken by the Insolvency Service under the disqualification proceedings, the Insolvency Service appears to be reserving their position relating to recovery action against directors for funds, where Insolvency Practitioners (“IPs”) are themselves taking action.
IP’s are also under increased scrutiny by the Insolvency Service and their Regulatory Professional Bodies (“RPBs”) to show that they have reviewed, in detail, matters relating to all Pandemic support schemes including:-
- Bounce Bank Loans
- Coronavirus Business Interruption Loans
- Recovery Loan Scheme
- Job Retention Scheme
- Eat Out to Help Out
This has resulted in IPs having to ensure that all records are delivered up early, a lot of which are held by accountants, who often are busy with live cases and push the delivery up of records to IP’s to the back of the queue. However, IPs are having to push harder for these records from the accountants, often without being able to offer payment for those services.
One question that we are seeing being asked more in the profession is:-
“Is the Government spending too much resource on pursing directors in respect of Pandemic support schemes at the expense of pursuing other wrongdoing issues?”
We at Northpoint have certainly seen cases where more traditional disqualification areas relating to HMRC appear not to have been taken forward, when they previously would have been.
The message from the team at Northpoint, is however, whenever a company is in any type of financial distress take advice early from a qualified IP who will try, as far as possible to save a business, only putting it into a formal insolvency as a last resort, and when that is the best option. Certainly, at Northpoint we work hard to save a business using our access to resources and funders that can assist, before taking that next important step.
Most importantly if you do have Government loans don’t bury your head in the sand, take advice and find out the full position, how this may affect you and steps that may be available before this is taken out of your hands.
We are there to help so don’t be afraid to seek advice.
Contact:-
Linda Farish – Northpoint – linda@northpoint.co.uk – 07308 662 252
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