There have been many Bounce Back Loan investigations by the Insolvency Service when Directors have gone into Liquidation because of exaggerated turnover on the application form, misuse of the funds for personal purposes and applying for more than one loan.
The Bounce Back Loan Scheme, introduced by the government as a financial lifeline during the economic fallout of the COVID-19 pandemic, aimed to support businesses.
However, the scheme was rolled out quickly to enable businesses to obtain substantial funds that would normally have taken a considerable time given the scale of lending up to around £46 billion. This would normally have taken many weeks and even months for businesses to go through the application process.
While the scheme provided much needed financial assistance, it also raised concerns about potential misuse and fraudulent applications for the Bounce Back Loans. The result has seen many companies go into Liquidation and then the directors investigated by the Insolvency Service following the Director Conduct Report issued in all such cases by the Liquidator.
Why Turnover Triggers Bounce Back Loan Investigations By The Insolvency Service?
A condition of the Bounce Back Loan Scheme was the loan could be no more than 25% of turnover
One of the primary reasons for a Bounce Back Loan investigation by the Insolvency Service is a concern about fraud when the loan was applied for by a director exaggerating their company’s turnover.
When a director applies for credit their integrity in the application process is deemed to be fundamental, such as when supplying information. At the heart of this is whether the Bounce Back Loan should have been applied for in the first place for the amount sought.
Some businesses exploited the scheme because the loans were readily and easily available. They may have provided false information or misrepresented their financial situation. The Bounce Back Loan Support Scheme in the main permitted a company to apply for a loan that was no more than 25% of the company’s turnover during 2019. There were many instances where companies applied for a loan and misstated their turnover by saying it was higher than it was in 2019.
When a Liquidator is asked to report on the conduct of a company director, a whole section is devoted to answering questions on Bounce Back Loans. Questions are put on whether the application process was properly complied with, including the matter of exaggerated turnover. In some instances, directors have been subjected to criminal proceedings after inflating their company’s turnover on a Bounce Back Loan application resulting in a criminal record.
How Misuse Of Funds Leads To Bounce Back Loan Investigations By The Insolvency Service?
A condition of the Bounce Back Loan was it had to be used for the economic benefit of the business
Bounce Back Loans were offered through the British Business Bank with favourable terms, including a 100% government guarantee and low-interest rates. However, Bounce Back Loans provided to businesses were required to be used for the economic benefit of the business such as covering operational costs, paying salaries, and managing cash flow disruptions.
Bounce Back Loans were in some instances used for a variety of personal purposes such as to repay director’s loans to the company in preference to other creditors in the event of an insolvent liquidation. Alternatively, in some instances, Insolvency Service investigations into the use of Bounce Back Loans revealed directors transferred the loan funds (in some cases the entire amount) upon receipt to their personal bank accounts.
This is a significant red flag for investigation as it is entirely against the purpose of the loan and the Liquidator would be obliged to report that to the Insolvency Service. This would likely trigger an investigation for the purposes of director disqualification and potentially even criminal proceedings.
How Many Bounce Back Loans Could A Company Get?
Multiple applications for a Bounce Back Loan were not permitted
Some businesses applied for more than one Bounce Back Loan through the same company and others did using more than one company, either intentionally or inadvertently.
Each company was only entitled to apply for one Bounce Back Loan. When the Liquidator reports to the Insolvency Service a question asked is whether more than one loan was applied for by a company director. It is perhaps inevitable that if a single company has applied for more than one Bounce Back Loan an Insolvency Service investigation will then usually follow.
This could occur when a single individual or group of individuals own or control multiple businesses. While the scheme allowed separate applications for each eligible business, applying for loans for non-existent or shell companies is typically fraudulent.
While the Bounce Back Loan Scheme played a vital role in supporting businesses during the economic challenges posed by the COVID-19 pandemic, the speed with which it was rolled out meant that money was lent with inadequate checks for normal lending conditions. As a result, it is only afterwards that on investigation has fraud and misuse been uncovered. As time has gone on the scale of this appears to have widened.
Ultimately, the scrutiny is aimed at safeguarding the public funds which is why there have now been so many Bounce Back Loan investigations by the Insolvency Service.
