Overview: Can I Get A Criminal Record Due To A Bounce Back Loan?
This guide addresses the question: can I get a criminal record due to a Bounce Back Loan??
In this article you’ll learn about:
- When you can get a criminal record over a Bounce Back Loan
- Bounce Back Loan Support Scheme restrictions
- Risk of a criminal record when defaulting on a Bounce Back Loan
This is a question some Directors ask when they are considering placing their Company into Creditors Voluntary Liquidation with a Bounce Back Loan.
There are five questions that rank top when a Director is considering Liquidation when they can’t pay back a Bounce Back Loan:
- Could I be personally liable for any of the company debts?
- Would HMRC come after me personally?
- Could I lose my home due to a Bounce Back Loan?
- Will I Be Disqualified As Director Over A Bounce Back Loan?
- Can I get a criminal record if I default on the Bounce Back Loan?
This post focuses on the last of these five questions.
The simple answer is if you are unable to repay a Bounce Back Loan and your company goes into Liquidation or is even dissolved, that is not a reason for a company Director to get a criminal record. A criminal record can arise when an offence has been committed that can have criminal sanctions applied and such a person is prosecuted.
Around 1.5 million businesses took out Bounce Back Loans and in the calendar year 2022 around 20,000 businesses went into Liquidation. To put that into perspective given all companies must have an individual as a company Director, there were 56 people who appear to have been subject to a criminal conviction between April 2022 and December 2022 based on information released on 13 January 2023 from Insolvency Service Enforcement Outcomes monthly data tables 2022/23. The yearly average since April 2016 was 88.
However, nobody can tell you in advance if you will or will not get a criminal record from conduct relating to a Bounce Back Loan. You might perhaps be unlucky but crucially it must be borne in mind it is a matter ultimately determined by a Director’s conduct, not on the basis of statistical averages. Typically criminal prosecution of Directors over a Bounce Back Loan is reserved for the most serious cases of misconduct.
It is ultimately the role of the Court to determine typically following an application by the Department for Business, Energy & Industrial Strategy and or the Insolvency Service and or HMRC.
Bounce Back Loan Restrictions
The Bounce Back Loan Support Scheme was to help businesses suffering from Pandemic. Many companies through suffered from the Covid-19 Lockdown that disrupted significant elements of the economy, such as for example hospitality.
In the context of considering Director misconduct over a Bounce Back Loan two key restrictions concerning the application for a Bounce Back Loan and its provision were:
- The Bounce Back Loan Support Scheme enabled banks to lend to businesses up to £50,000 based on the level of turnover. A company could only borrow up to 25% of its turnover.
- It had to be used for the economic benefit of the business and not be deployed for personal use.
A business that has obtained a loan and failed to properly comply with such terms could have committed a criminal offence.
Personal guarantees from company Directors were not sought in exchange for Bounce Back Loans; in fact, banks were not permitted to seek them. The Government guaranteed the loan to the bank if the business defaulted.
However, these Bounce back loans could not be written off so they were not loans whose repayment terms could continually be extended. A Government Fact Sheet says:
The money lent to your company under the Bounce Back loan scheme must be paid back, over 6 or 10 years, with payments starting 12 months after your company receives the loan.
However, nevertheless, there has been widespread concern about the controls in place to prevent abuse of the Bounce Back Loan Support Scheme.
Risk Of Criminal Proceedings Over A Bounce Back Loan
The risk of a Director being prosecuted and thereby subject to criminal proceedings over Bounce Back Loan cannot realistically arise from defaulting on its repayment.
If the Bounce Back Loan is not repaid then correction of that is a matter of contract. The contract is the loan agreement between the business (the borrower) and the bank (the lender). The bank’s remedy is to pursue actions such as obtaining a judgment against the business that has borrowed the funds and or in the case of a company petitioning for a Winding Up Order. These are matters dealt with by the civil courts, not the criminal courts.
Obtaining Credit By Deception
However, if for example, a Director has engaged in misconduct associated with the application for the loan and its subsequent use because there were strict conditions on both that a borrower had to acknowledge when applying for it then the possibility of facing criminal proceedings cannot be ruled out. Misconduct can typically arise when a borrower obtains credit when supplying false information. Legally this is known as obtaining credit by deception.
In the case of a Bounce Back Loan a risk to someone being accused of obtaining credit by deception is typically when a company Director has applied for the loan and substantially exaggerated the turnover thereby obtaining a far greater loan than they were entitled to. Alternatively another form of misconduct has involved the use of the Bounce Back Loan funds received.
Mis-Use Of The Bounce Back Loan Scheme
There have been some well publicised cases of company Directors who have applied for Bounce Back Loans and who it appears did not intend to make use of the loans for the economic benefit of the business. The consequence was they had criminal proceedings brought against them:
- On 27 June 2022 a Government Press Release Bounce Back Loan fraudster jailed highlighted the case of a company Director of a Manchester pizza takeaway who claimed £20,000 Bounce Back Loan. The Director was jailed for 2 years on 24 June 2022. In that case, an application to dissolve the company was originally signed on 17 June 2020 but less than two weeks later, the Director applied for a Bounce Back Loan of £20,000.
- In a subsequent case in a Government Press Release on 16 November 2022 Suspended prison sentence for Bounce Back Loan Fraudster published the case of a Director of a Middlesbrough telecoms company who had taken a £25,000 Bounce Back Loan and then dissolved the company the next day.
An Insolvency Practitioner cannot tell a company Director if they will be prosecuted for a Bounce Back Loan that is not repaid. It is not the decision of the Insolvency Practitioner.
A Liquidator has a duty to issue a report to the Insolvency Service on the conduct of company Directors in cases of insolvent Liquidations and so to will the Administrator of companies that go into Administration. That report goes through the Director Conduct Reporting Service. The Liquidator (or Administrator) has to answer a series of questions that enables the Insolvency Service to consider if a Director’s conduct might be deemed unfit or even criminal.
Using Bounce Back Loans to pay Director wages was permissible because it may well reasonably be deemed to be for the economic benefit of the company ie. for a Director to be incentivised by being able to continue to draw their salary. But cases, when Bounce Back Loan monies have been transferred from the company to the Director personally might place a Director at a higher risk of not only being considered in breach of the terms of the Bounce Back Loan Support Scheme but in more serious cases potentially capable of being considered for criminal prosecution.
