Bounce back loan fraud and director disqualification

In 2020, the government hurriedly introduced the COVID-19 Loan Guarantee Scheme to assist businesses adversely impacted by the coronavirus pandemic. The scheme offered the following loans.

1. Bounce Back Loan Scheme (BBLS), providing loans of  £2,000 and £50,000 for SMEs and micro-businesses.
2. Coronavirus Business Interruption Loan Scheme (CBILS) for businesses with a turnover of less than £45M.
3. Coronavirus Large Business Interruption Loan Scheme (CLBILS) for mid-sized and larger UK businesses with a group turnover of more than £45M.

Whilst no doubt the bounce-back loan scheme (and the other schemes) helped many businesses survive and navigate the economic impact of the pandemic, absent stringent eligibility checks and oversight, the scheme was targeted by widespread, not least in respect of the bounce back loan scheme.  As a result of misusing the bounce-back loan, many directors are now facing serious legal consequences, including director disqualification.

Bounce back loan eligibility

In order to be eligible for a bounce back loan, a business had to confirm amongst other matters, that it was trading as at 1 March 2020, it had been adversely affected by the pandemic and that the loan would be used specifically for the economic benefit of the company. So as to roll out the bounce back loan scheme quickly, business were merely required to self-certify their eligibility.

What does bounce back loan fraud looks like?

Bounce back loan fraud includes the following:

• False loan applications: including applications using overinflated turnover figures or applications submitted for dormant or dissolved companies.
• Making multiple loan applications with different banks, despite the scheme only permitting businesses to apply for one loan.
• Misusing the loans. The loans were made specifically on the proviso that they were to be used for the “economic benefit of the company”. Many cases involve directors using some or all of the funds for personal gain. Others transferred the funds to personal accounts and then dissolved the company to avoid repayment.

Legal consequences

The consequences for knowingly providing false information to obtain a bounce back loan or for using the funds for improper purposes include, director’s disqualification, compensation orders, confiscation orders, fines and imprisonment.

In relation to director disqualification, directors who are found guilty of misconduct in relation to the loan schemes can face disqualification for up to 15 years, preventing them from being involved in the promotion, formation or management of a UK limited company. In addition, the Secretary of State can also seek a compensation order against which allows for the recovery of monies from a director whose misconduct has caused loss to the company in the run-up to insolvency.   

There are also wider reaching impact and personal consequences of being banned as a director; which can include

• Effecting current employment and business interests
• Restrictions on future employment
• Criminal penalties if a disqualification ban is breached
• Other financial penalties – e.g., personal liability for company debts if a disqualification ban is breached.
• Professional and personal embarrassment
• Potential claims by the liquidator/administrator of the company.

Recent cases of director disqualification

Below are recent cases where directors have been disqualified for BBLS fraud.

• A director was banned for 13 years for obtaining 3 BBL for one business and ordered to pay £100,000 by way of a compensation order. 
• A director was banned for 9 years for applying for a BBL for a dormant company and using the funds for personal expenditures.

Conclusion

Although the scheme was withdrawn in 2021, its effects are still being felt. Directors involved in such misconduct face serious repercussions, and seeking specialist advice from a director disqualification solicitor at the earliest opportunity is key.