The Insolvency Service disqualified more than 1,000 directors in 2024-25, according to its latest report on enforcement outcomes. Of the 1,036 sanctioned, 736 were banned for Covid loan abuse. The average length of a ban was eight years, on a scale of two to 13 years.
Most commonly, individuals can be banned from being the director of a company for actions including:
- failing to maintain adequate accounting records.
- not paying tax or VAT that is owed to HMRC.
- securing government financial assistance – such as access to a Covid Bounce Back loan – when they were not entitled to it.
Five years after the government’s Bounce Back Loan (BBL) Scheme was rolled out to save small businesses at risk from pandemic lockdowns, closer scrutiny of businesses now unable to repay the loans is leading to action against an increasing number of individuals, not just company directors, for abusing the system. The Insolvency Service has been throwing the book at individuals who made false applications, in some cases not even trading when they received the funds.
Bankruptcy Restrictions Orders (BROs) and Bankruptcy Restrictions Undertakings (BRUs) are being secured against many banned directors, whose conduct has been considered dishonest or blameworthy. The Insolvency Service report shows that of the 131 bankruptcy restriction orders put in place during the 12 months under review, 87 were related to the abuse of Covid loans.
BRO and BRU restrictions prevent individuals from:
- Acting as a director of a company, or forming, managing or promoting a company, without permission from the court
- Carrying on business under a different name without telling people you do business with the name (or trading style) in which you were made bankrupt
- Trying to borrow more than £500 without saying you are subject to restrictions
- Being a trustee of a charity or many pension schemes
- Working in various posts in education or the health industry
- Holding posts in some public authorities, or in similar organisations
Recent BRUs have been handed down for periods of between 10 and 12 years.
Separately, the Insolvency Service is wasting no time launching official investigations into those voluntarily dissolving companies (outside a Creditors’ Voluntary Liquidation) with outstanding BBLs. In theory there is no ‘comeback’ on Directors whose businesses default on BBLs: their personal assets are safe since the loans are unsecured and involve no personal guarantees. The debt is written off once the company is liquidated, so liability doesn’t transfer, provided Directors have complied with their statutory duties.
Government investigators and appointed Liquidators will pick apart a company’s financial record in the run-up to insolvency. There are countless examples of questionable payments and enrichment on the back of BBLs, with some extreme cases well documented. Improper use of these lifelines will almost certainly make Directors personally liable for this outstanding debt.
The Insolvency Service’s tighter grip on directors is revealing wider fraud issues beyond government loan abuse. The number of cases sent to the service’s compliance and targeting department is running at around 1,000 per month. There is no place to hide.
Individuals and directors at risk of personal liability, either from earlier BBL applications or from trading in the run-up to company insolvency, are encouraged to get in touch with us at Buchler Phillips for a free initial consultation.