Loan fraud bounces back on builder

December 6, 2023

In case anyone needed confirmation that the Insolvency Service is stepping up action against businesses which have abused the government’s Bounce Back Loan (BBL) Scheme, look no further than the 20  month custodial sentence (suspended for two years) meted out in recent days to a self-employed builder from west London.

His is an egregious example of BBL fraud: a maximum £50,000 loan secured on stated turnover of £205,000 against real turnover of around £20,000. It gets worse – he used the loan money to invest in cryptocurrency through an online broker who, in turn, was also committing fraud and stole the full amount of the money ‘invested’. The full extent of the mess was discovered in the borrower’s bankruptcy.

On top of his suspended sentence for Fraud by False Representation, the builder has to pay £12,000 compensation to the bank from which he obtained the BBL, as well as completing 200 hours of unpaid work and 15 days of “rehabilitation activity”.

The Insolvency Service will always get round to lifting the lid on fraudulent business borrowers and directors of failed companies, sometimes just when they think they might have escaped scrutiny. Investigations specifically into directors of insolvent companies are rising sharply, presently up more than a third year-on-year.

More than three years after the BBL was rolled out to save small businesses at risk from pandemic lockdowns, the Insolvency Service seems particularly interested in 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 beyond the case of the Hounslow builder 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 is 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 been more than doubling month-on-month in the last year. Now that investigators are clearly on the warpath, Director & Officer’s (D&O) insurance claims, from those seeking to cover the costs of investigations and penalties, are expected to grow dramatically.

Written by our analysts’ team 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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