What Is Bounce Back Loan Fraud Or Misuse?

Bounce Back Loan fraud and misuse arises from three key elements:

• Exaggerated turnover on Application resulting in obtaining credit by deception.
• Misuse of Bounce Back Loan funds.
• Applying for more than one loan per company.

What Is Bounce Back Loan Fraud?

Following the Covid-19 pandemic there was huge pressure on UK businesses in many sectors of the economy due to the lockdowns.

To combat this the government introduced various forms of Covid finance to businesses in need, including the Bounce Back Loan support.

Where Bounce Back Loan Fraud is concerned there are a number of issues that have caused Bounce Back Loan Investigations. Two of those issues are right at the heart of what is Bounce Back Loan Fraud.

In order to properly apply for a Bounce Back Loan the business needed to satisfy certain requirements.

They relate to what is known as exaggerated turnover and Bounce Back Loan misuse.

What Is Exaggerated Turnover?

Exaggerated turnover arises when a Bounce Back Loan was applied for and the disclosed turnover was too high. 

On the application form, there should have been two ways for a business to disclose its turnover:

• Turnover for the calendar year 2019; or
• If trading commenced after 1 January 2019 what is the estimated annual turnover.

The restriction was that the loan a business could apply for was to be no more than 25% or its turnover. Or to put it another way, turnover had to be four times the amount of the loan.

It seems there have been many instances where turnover was exaggerated on the application form.

If a business applying for a Bounce Back Loan has exaggerated its turnover on the application form there is a risk it could be accused of fraud. This could arise from the offence set out in Section 2 of the Fraud Act 2006 being fraud by false representation.

What Is Bounce Back Loan Misuse?

Bounce Back Loan monies from the scheme made available through the British Business Bank were required to be used for the ‘economic benefit’ of the business. The misuse arises if the monies are deployed for purposes other than this ‘economic benefit’.

This ‘economic benefit’ condition mirrors the requirements of Directors of a Limited liability company set out in Section 172 of the Companies Act 2006. This requires a Director to act in good faith in promoting the success of the company. 

It was usually perfectly permissible for a company Director to use the monies to continue paying themselves their monthly salary for example. However, if a Director upon receipt of the funds paid themselves a substantial bonus then this might have amounted to a misuse of the monies.

There have been many instances in which Directors transferred Bounce Back Loan monies into their personal account which may have increased or created an Overdrawn Director’s Loan Account or paid themselves a dividend or repaid the loans they had advanced to the company potentially thereby receiving a Preference. Typically this would have amounted to misuse of the Bounce Back Loan.

Bounce Back Loan monies were advanced to enable a Covid Pandemic affected business to survive the effects of lockdown by providing much needed working capital thus hopefully easing company cash flow problems, not to be hoovered up by the Directors personally. 

Director Risk From Bounce Back Loan Fraud

There are a number of risks that Directors may face from Bounce Back Loan fraud besides simply having to repay the Bounce Back Loan personally if the business cannot do so.

Director Disqualification And Compensation Order

Director disqualification is perhaps one of the most common risks faced by a Director who may have engaged in Bounce Back Loan fraud. Such conduct would typically be considered to be ‘unfit’ as set out in Schedule 1 of the Company Directors Disqualification Act 1986. This part of the legislation sets out examples of matters that may be taken into account when considering what is deemed to be unfit conduct.

The Insolvency Service under its delegated powers from the Secretary of State can also apply to the Court to obtain a Director Disqualification Compensation Order for the Director to compensate the company for losses arising from Bounce Back Loan fraud.

Criminal Proceedings

Bounce Back Loan fraud is a very serious matter and as a result criminal proceedings could be brought. If that were to happen a person could be imprisoned if convicted.

Oliver Elliot Comment On Bounce Back Loan Fraud

A Director responsible for Bounce Back Loan fraud has an increased risk of being discovered if the loan repayments are not made and for example, the company goes into Liquidation. That arises simply because in such circumstances a Director will typically open themselves up to other investigations. 

However, this is not the only route to the fraud being discovered as the Insolvency Service now has the power to investigate dissolved companies and some lenders are conducting their own investigations into loans applied for and their subsequent use.

If a person suspects or becomes aware they may have been a party to Bounce Back Loan fraud then they should seek independent professional advice as soon as possible.

At Oliver Elliot, we can assist Directors who can’t pay a Bounce Back Loan and help them explore their options. If you are in that position then get in touch with us on a no obligation basis for an initial free consultation.

Liquidate A Company With A Bounce Back Loan