Bounce back loans and liability
The Government has recently announced plans for a £25 million “fraud squad” to crack down on criminal activity relating to bounce back loans and other covid-support schemes, including inappropriate use of such schemes by some directors. As part of that process, banks themselves will be coming under scrutiny.
It transpires that little, if any, due diligence was undertaken by banks before approving bounce back loans – in many cases directors simply had to tick a check box to confirm eligibility. Whilst undoubtedly due in part to the urgent need to provide financial support to struggling businesses and the Government’s wish to be seen to do so, the knowledge that the loans would be backed by a 100% Government guarantee may have encouraged some banks’ apparent relaxed attitude to lending.
Bounce back loans were granted in reliance on a certification that a company was eligible for the loan and that it would apply the loan for the benefit of the company and for the stated purpose in the loan application. If banks are found not to have applied even basic due diligence, the Government “guarantee” may be withdrawn and any monies already claimed under the loan guarantee will be clawed back. British Business Bank estimates that nearly £63 million has been paid out to UK banks so far on potentially fraudulent coronavirus related business loans.
Directors who made misleading or fraudulent applications may be determined to be personally liable to repay the entirety of any loan. This could include situations where, as a result of a change in circumstances, the money has been used for alternative purposes other than those for which it was advanced. As a result of recent changes, the Insolvency Service now has power to investigate companies which have already been dissolved. The Insolvency Service is publicising reports of bounce back loan fraud. It is anticipated that a proportion of those businesses which applied for and obtained bounce back loans were struggling pre-pandemic and ought, perhaps, to have entered into formal insolvency some time earlier.
If you are a director or a company faced with a claim relating to a bounce back loan or other covid-support scheme or if you require advice more generally in relation to any aspect of corporate or personal insolvency, please contact John Bradshaw or Sarah Mower in our Insolvency & Business Recovery Team.
Sarah Mower is a chartered legal executive and specialist in Insolvency & Business Recovery at Barker Gotelee Solicitors.