The Bounce Back Loan Scheme was launched in May 2020 by the British Business Bank (“BBB”). It has helped thousands of businesses suffering from the effects of the Global Pandemic. It was a vital lifeline offered to businesses that otherwise would have gone to the wall when the National Lockdown kicked into effect.
Unfortunately the administration of the Scheme appears to have been far from perfect.
Information provided by the government through HM Treasury suggests that over £47 billion was provided in the form of Bounce Back loans following in excess of £2million applications.
However, now the Scheme is no longer open for new applications and particularly as the number of companies going into voluntary Liquidation has risen considerably since closure on 31 March 2021, attention appears to have turned towards those who may have taken unfair advantage of the Scheme. The knock on effect is that many company Directors will be concerned about what happens if they are unable to repay their Bounce Back Loans.
Company Director Risks Faced From Bounce Back Loans
Bounce Back Loan Misuse
A unique feature of the Bounce Back Loan Scheme was the desire to get it up and running quickly so that even small businesses could get the help they needed. To obtain loans company Directors did not need to provide a personal guarantee to safeguard the lender. The guarantee came instead from the government.
It has been noted not least by a former government Minister, Lord Agnew, that controls over how loans were approved was too relaxed and in his resignation speech in the House of Lords, were occasioned by “shoolboy errors”.. When he later appeared before the Commons Treasury Committee, he suggested the fraud risk was ignored until it was far too late.
In a case highlighted recently by the Insolvency Service the Director of a pizzeria was jailed for two years after claiming a £20,000 Bounce Back Loan because it was to run a business.
Reports coming out of the Insolvency Service have repeatedly highlighted that Bounce Back Loan misconduct is of two notable types:
- Improperly applying for a Bounce Back Loan when the company or business does not have the turnover required to justify the amount of the loan.
- Misuse of the Bounce Back Loan funds when they have been received.
There have been a number of reported instances in which both the application and the use of the Bounce Back Loans were improper, resulting in Directors receiving lengthy bans by being stripped of their right to act in the management of companies.
Business Trading Requirements
The Bounce Back Loan Scheme set out by the BBB enabled a company to apply for a loan based on the level of its turnover:
“It aims to assist businesses to borrow between £2,000 up to 25% of a business’ turnover (the maximum amount available is £50,000).”
However, in some instances application forms allowed borrowers to estimate turnover in business. This appears to have led to some borrowers being uncertain as to how they were to determine the level of their turnover. As a result they may have obtained loans greater than their entitlement with reference to their historic trading position.
Some company Directors may now be concerned about being unfairly targetted by the Insolvency Service for investigation and being removed from the business community when disqualified as a Director. It can of course also be worrying if such matters lead to suggestions of fraudulent credit applications.
Deployment Of Bounce Back Loan Monies
The Scheme required businesses to use the loan for business purposes with the BBB’s stipulation:
“They will use the loan only to provide economic benefit to the business, and not for personal purposes.”
It appears that there have been many instances where company Directors have received the Bounce Back Loan and with alacrity transferred such funds in entirety into their personal bank account.
Such conduct, apart from looking inherently suspicious could have placed many company Directors at real risk if their company winds up shortly thereafter in Liquidation. They could be called upon by a Liquidator under a whole raft of provision under the Insolvency Act 1986 to repay the full amount of the Bounce Back Loan back.
Elliot Green, CEO of the insolvency firm Oliver Elliot Chartered Accountants has observed:
“Company Directors who are worried they may have personally hoovered up funds provided should act now to take legal advice so that they are fully aware of how their conduct might be viewed in the event their company enters insolvent liquidation. They will then be able to consider their options with a view to taking action sooner rather than later to attempt to avoid making matters conceivably worse.”
