The level of bounce back loan fraud is increasing with more directors and business owners are 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. The consequences of these actions not only affects the businesses that receive the support but honest businesses who are deterred from claiming because of the fear of being linked to fraudulent activity.
HMRC and other agencies are working hard to crack down on those individuals who attempt to commit Bounce Back Loan fraud but it is a problem that is growing at an alarming rate. Business owners should be aware of the risks involved in taking out a Bounce Back Loan and should make sure that they are able to repay the debt before applying for the loan.
In December 2020, the UK government introduced new legislation giving the Insolvency Service additional powers to investigate and sanction directors who had abused pandemic support packages to escape their creditors. The move was seen as a crackdown on those who had taken advantage of the system, and it was hoped that the new rules would deter others from doing the same.
The Insolvency Service is now able to fine directors who have used these schemes although no cases have yet been brought under the new rules. Critics have argued that the legislation is too broad and could be used to target legitimate businesses that are struggling due to the pandemic. However, supporters of the movie say that it is necessary in order to protect taxpayers’ money and ensure that only those who need support are able to access it.
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.”
The Insolvency Service has revealed that four directors have been disqualified after securing bounce back loans before dissolving their companies to avoid paying their liabilities back. This comes as a shock to the 1.4 million small and medium businesses who took out these loans in good faith, with the government providing full guarantees for the banks.
It is clear that more needs to be done to check eligibility for these emergency loans, as the current system is open to exploitation by fraudsters. The Insolvency Service’s announcement sends a strong message that this kind of activity will not be tolerated, and hopefully will deter others from trying to exploit the system.
The Insolvency Service is just one of several agencies that the government has tasked with pursuing the billions of dollars outstanding from coronavirus support programs. However, the Service is facing a lack of resources compared to other agencies chasing the overall abuse of these schemes. Despite this, they have reported some success.
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, the Service was limited to using formal legal and insolvency processes such as court led winding up petitions of companies.
However, they have since expanded their repertoire to include more informal methods such as disqualifying directors and working with law enforcement to investigate and prosecute fraudulent activity. With any luck, these expanded efforts will help to recover some of the billions still owed from these schemes.
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. These powers allow the Service to investigate directors of dissolved companies without the need to launch a formal insolvency process.
This is a significant development, as it means that directors who have improperly used or obtained funds, or have been able to dissolve their business with outstanding debts, can face sanctions including being disqualified as a company director for up to 15 years. In the most serious of cases, directors may even be prosecuted.
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Dinesh Kumar VM
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