Whose Money Is The Bounce Back Loan?

Ever had a look around the Insolvency Service’s Director disqualification outcomes: summary of results page? Well if you do it looks something like this:

The most recent addition as of the time of our latest look was for the date 11 March 2924. No doubt it should have been 11 March 2024 as the next one in the list was dated 4 June 2024.

Having a look at a director and the reasons for disqualification and you will find something looking like this:

We extracted a bit of data from this site and out of 380 directors listed, 119 (31.3%) ie. almost a third of directors in the listing have misconduct issues which included the wording “economic benefit”. This must have something to do with Bounce Back Loans because around 80.5% of the directors listed had some bounce back loan reference in their misconduct schedule.

The expression economic benefit is largely derived from one of the bounce back loan support scheme terms. It was a condition that bounce back loan monies had a permitted use confined to the economic benefit of the business and not some other purpose.

However, there is an interesting point about bounce back loan badness in that once the bounce back loan was approved, it was transferred to the business. What if there was already money in the bank account? Whose money was the bounce back loan then and was the permitted use a trust scenario?

The loan once transferred presumably must have been company money (assuming it was transferred to a limited company) and if there were already funds in the bank account then it would have become mixed with the other company money. 

There was no apparent separate requirement for the segregation of funds to treat the bounce back loan as trust monies to ensure that those discrete funds were only used for the economic benefit of the business. It was simply a condition of the lending of the funds in the first place.

On that basis if there was money in the bank account already before the bounce back loan monies sprouted, then if there was a quasi-trust situation arising what money was being used? Was it bounce back monies or was it first the monies of the company before the bounce back loan turned up or was it simply a combination of both sets of monies?

If the money had become mixed company monies then the question some directors may have had cause to ask (whose remuneration package was dividends dependent) might be Can I Use A Bounce Back Loan To Pay Dividends?. It is largely considered that dividends even on the basis of a remuneration strategy would not have been a permitted use of bounce back loan monies whereas salary would.

This mixed monies setting however may have made the economic benefit of the business aspect of bounce back loan investigations by the Insolvency Service a little more challenging. 

Indeed we could only find one case out of the 306 cases in the listing involving bounce back loans where the word dividend was mentioned and it was perhaps unsurprising this case did not escape the listing:

On 07 May 2020 the BBL of £37,500 was paid into VCS’s account;

On the same date the entire loan was transferred to Mr Kilde, with the description ‘dividend payment’;

If you decide to have a survey of the director disqualification public record listing, many of the cases seem to have reasonably clear-cut issues of bounce-back loan abuse with periods of disqualification often amounting to 10 years in circumstances where there has been a combination of turnover on the application for the loan being exaggerated and the loan appears to have been misused.