Two limited company scalps have been claimed by BBL fraud-busters; make sure yours isn’t next

Amid the pandemic, limited company contractors were fuelled with government Bounce Back Loans (BBLs) to replenish cash flow and survive the unprecedented trading conditions foisted on them by covid-19.

Although this presented a much-needed helping hand to businesses on tenterhooks, a small batch of directors dived straight within the smoke to exploit the scheme, and now officials are fighting back, writes Keith Tully of Real Business Rescue.

Strike off provides no escape

In particular, new legislation has been introduced to grant special retrospective powers to The Insolvency Service to investigate directors for BBL fraud, even after company strike-off.

As a result, the Insolvency Service is gearing up to actively tackle BBL fraudsters who have dissolved their businesses, despite now being under suspicion of fraudulently obtaining Bounce Back Loans or actively neglecting the strict terms under which the loans were granted.

In raising their gloves to deliver a centre-stage knock-out, this early deterrent is a preview of what’s to come from the Insolvency Service for ‘unfit’ directors, given two separate companies, LV Distributions Ltd and SIO Traders Ltd, got thumped just last month.

Two ‘companies’ confirm the Insolvency Service isn’t taking prisoners  

Participating lenders in the BBL scheme have lent £46 billion in loans to date.

The loans were tied with a bow in the form of a 100% government guarantee to accelerate access to essential funds, latching a boulder onto the public purse. To protect this guarantee, a loophole was closed to grant extra powers and ammunition to the Insolvency Service, to weed out company directors who fraudulently claimed BBLs and have since been dissolved.

Well, in line with the legislative intent, the two previously mentioned limited companies have now been erased by officials, after it was discovered that the two separate firms took to fraudulent means to access BBLs. The High Court ruled that both LV Distributions and SIO never actually traded, and were wound up after falsifying documents such as fake leases, and bogus utility bills to access covid-19 financial support.

A harsh and heavy price for BBL misdeeds

It should be acknowledged that the covid climate placed undue, unprecedented pressure on enterprise. But the pressure was so much that, for a small number of owners (who probably were always unscrupulous anyway) desperate and unlawful measures were pursued, by them looting what the government intended to be urgent financial relief in a national emergency. Quite expectantly, perhaps, the price to pay for Bounce Back Loan fraud is harsh and heavy. And it’s a price that applies to all limited companies, including sole director contractor companies.

In practice, that means guilty directors who went rogue could face director disqualification, resulting in losing the right to become a company director for up to 15 years, paired with the risk of a prison sentence. And if you are found to have misused your Bounce Back Loan, you can even be held personally liable for the business debt!

What constitutes Bounce Back Loan misuse?

A Bounce Back Loan can only be used to provide an economic benefit to the business – not for personal use.

Using a Bounce Back Loan to remunerate staff at an increased rate is impermissible.

When taking out a Bounce Back Loan, you were instructed to declare that your business had been ‘adversely impacted’ by the coronavirus pandemic, however, not that it was in financial difficulty. If your company was in financial difficulty when applying for a Bounce Back Loan, an insolvency procedure should have been pursued.

Finally, speak to an expert because escape is a myth  

Lastly, be aware that the company strike off route is commonly misconstrued to be an escape route from repaying Covid-19 loans or other creditor debts. But this is actually little more than a dangerous myth because with the loophole now closed by legislation, severe consequences for BBL fraud are inescapable, especially with what seems to be an increasingly vigilant Insolvency Service. Don’t risk taking them on -- if you are in Bounce Back Loan debt and require business debt help, it may be time to call in an insolvency expert.