The ‘Bounce Back Loan’ (BBL) was a measure introduced to assist businesses impacted by the Coronavirus pandemic. Financial support of up to £50,000 was available and whilst there were qualifying criteria, they were deemed to be somewhat loose. For many businesses these loans were a vital lifeline. However, it now seems that that these loans were open to abuse and misuse.
As a result, there is going to be investigations into how the funds were actually utilised, if they cannot be repaid.
Consequences for Directors
In the event of an insolvency, the director’s conduct will be scrutinised, with any misuse of or misappropriated funds, subject to consequences.
There is a serious risk of disqualification where blatant abuse has occurred.
See these two recent cases:
- A director disqualified for 12 years for a blatant transfer to themselves of Company funds including the full BBL,
- A director disqualified for 11 years for falsifying the application for a BBL and misappropriating funds.
The disqualification periods are at the higher end of the scale suggesting the attitude that the Insolvency Service are taking towards misuse of BBL’s. The Insolvency Service also have the power to consider taking further criminal proceedings.
What to do or not to do…
Clearly if a BBL has been appropriately obtained and the funds utilised properly for the benefit of the business, then this will be identified even if insolvency becomes unavoidable.
However, The Insolvency Service is currently exercising its powers to petition the Court to wind up numerous companies that have abused the Government support measures. Legislation has been passed to allow the investigation of companies which have been struck off voluntarily upon the application of directors during the Covid period but where Government loans have remained unpaid.
The stance of the Insolvency Service to the misuse of BBL’s and the action that will be taken if necessary is only now becoming clear and it is evidently a hard-line approach. It is always best to seek advice, which if sought early, could resolve unnecessary concerns.