Contractors, are you a Bounce Back Loan defaulter with a CIFAS marker against you?

There’s good reason to hope if you work on behalf of or professionally supply a financial services or government organisation that you’re not one of the growing number of contractors who solicitors are signalling are BBL defaulters with CIFAS markers loaded against them, writes Gareth Wilcox, partner at Opus Business Advisory Group.

Before I explain why you’d need to be hoping as such, let me demystify at least one of the acronyms I’ve just used, while also providing a little refresher of what, for many contractors, will be a scheme they blocked out of their memory because it was part of those grim pandemic days.

Bounce Back Loan (BBL) scheme refresher

The Bounce Back Loan scheme commenced in May 2020. 

It was designed to provide companies affected by Covid with a government-backed loan of up to £50,000, based on its historic turnover and certain other criteria (e.g. the business was not in financial distress pre-Covid). 

The loans were interest-free for the first 12 months, not subject to any requirement for a personal guarantee, and latterly businesses have been provided with flexible schemes for repayment for periods up to 10 years. 

It is unsurprising therefore that, according to stats released last month, a mega £46.6 billion in loans were drawn -- and the government estimates that BBLs contributed to up to 500,000 businesses (and to the saviour of up to 2.9 million jobs, albeit by all covid support schemes). 

But here’s the rub. Due to the speed in which the scheme was implemented, and the extremely limited scope for lenders to verify applications, inevitably it was open to abuse.

For contractors who like the detail before forging on, a report by the National Audit Office in 2020 was critical of the lack of lender checks, and estimated that government losses under the loans could amount to up to £26billion.

How is the recovery going?

According to the latest data as at 31 December 2022, 79% of BBL facilities are either fully repaid or on schedule; around 7% are in arrears, 2% are in default. 

The British Business Bank has paid out under its guarantee in relation to around 9% of total loans granted, with the 3% difference presumably being where defaults have occurred but no guarantee payment has yet been made.

While these numbers may appear encouraging, there is no hiding the fact that 9% of £46.6bn is still a very large number, with the government guarantee representing a significant drain on public finances.

What steps has the government taken?

As ContractorUK readers may recall from a previous article, one of the early steps taken by the government was to extend the ability for the Insolvency Service to bring disqualification action against directors whose companies are dissolved, where previously this was only possible for companies which had been liquidated. 

This appeared to be a direct response to concerns that directors of limited companies which had potentially misused the scheme to obtain BBL funds, may seek to dispose of those companies without the scrutiny of a liquidator’s statutory powers of investigation.

This extension appears to be bearing fruit. According to an April 2023 update by the Insolvency Service, of the total 932 director disqualifications in 2022-23, 459 were cases involving covid financial support scheme abuse. There have also been numerous reported cases of criminal prosecutions being brought against individuals in the most serious cases, with several prison sentences being handed down.

In relation to companies over which an Insolvency Practitioner (“IP”) is appointed as liquidator or administrator, the Insolvency Service also now mandates that the appointed IP must specifically report whether there is evidence to suggest any abuse of covid support schemes as part of the company director’s disqualification submission which they are required to make in every case.

What steps are banks now taking?

Owing to the sheer amount of loans granted under the BBL scheme, it has taken some time for banks to catch up, but several are now reviewing their portfolios with a view to seeking recoveries where they consider that applications for BBL funds were made falsely. 

Anecdotally, I have seen this in cases where more than one company in a group structure made an application when it ought not to have done, and where turnover figures are alleged to have been inflated to overstate the amount a business was entitled to.

Where banks reach these conclusions, they may seek a clawback of the debt adjudged to now be repayable, using the usual debt recovery channels.  This could result in a freezing of bank accounts, and a bank seeking under its terms to apply set-off of any credit balances held, in order to reduce or repay the loan.  An illustration of this process can be found in this published decision of the Financial Ombudsman, which shows that directors in receipt of aggressive letters from their bank should take the  matter seriously, and consider taking professional advice.

CIFAS markers: explained

One other (perhaps lesser known) step that lenders may consider is making a referral of any individuals believed to be a party to BBL scheme fraud, to CIFAS -- formerly the Credit Industry Fraud Avoidance System.

Mentioned in my intro, CIFAS is a fraud prevention membership organisation, which promotes the sharing of data between financial institutions and individuals, to reduce instances of fraud and financial crime.  Where there are demonstrable allegations of fraudulent activity, a CIFAS ‘marker’ may be placed on an individual and shared with any institution who is a CIFAS member. 

The presence of a CIFAS marker will (perhaps obviously) have a significant impact on an individual’s ability to obtain credit or, in certain circumstances, employment.  

CIFAS as a contractor? A real kicker if you need SC or work in FS

And here’s the bigger rub for contractors. A CIFAS marker may be of particular adverse significance for contractors who work in financial institutions, or are subject to security clearance requirements.

Problematically for you finding out if you’re one of the growing number of contractors who solicitors are suggesting did default on their BBL -- only to now have a CIFA marker against them there is no requirement for a lender or institution to notify an individual that a marker has been placed!

The most definitive method of finding out whether a marker exists under your name is to submit a ‘Data Subject Access Request’ on the CIFAS website. The website also provides detail of the different types of marker and when they may be applicable. If an individual finds that they have received a CIFAS marker and wishes to have it removed, they should take advice from a solicitor with expertise in dealing with them. Be aware, a CIFAS marker can unfortunately be more difficult to shake off than a CCJ.

Final thought

While it is still early days in the BBL scheme recovery process, clearly there have been significant levels of misuse, and the likelihood is that the surface is only being scratched. Any contractor limited company directors who are uncertain about their business’s ability to repay funds obtained under the BBL scheme should take professional advice as a matter of urgency, as should any who, in hindsight, are uncertain whether they should have applied in the first place.

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Written by Gareth Wilcox

Gareth Wilcox is a Partner and Licensed Insolvency Practitioner with Opus Restructuring & Insolvency.  As well as heading up Opus’ Birmingham office, he oversees the solvent restructuring team and has significant experience in this area

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