Covid loan fraud bounces back on sole traders

March 12, 2024

Almost four 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, examples of which include overstating the income of their businesses, or in one case, not even trading when they received the funds. Bankruptcy Restrictions Orders (BROs) and Bankruptcy Restrictions Undertakings (BRUs) have been secured against these people, whose conduct has been considered dishonest or blameworthy.

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.

So far in 2023-24, the Insolvency Service has secured 69 bankruptcy restrictions and 757 director disqualifications relating to Covid financial support scheme abuse allegations.

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 has more than doubled to more than 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.

This article is written by James Bryan, Restructuring Manager at Buchler Phillips, an independent boutique firm, with an impeccable Mayfair London heritage, specialising in corporate recovery, turnaround, restructuring and insolvency.

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