The Insolvency Service
If you were a company director that fraudulently obtained COVID-19 support, whether knowingly or inadvertently, you could now face the Insolvency Service’s investigations into Bounce Back Loans and other COVID related fraud, regardless of whether your company is operational or has been struck off. Over 70% of the Insolvency Service’s investigations are now in relation to these matters and the results of these investigations have shown just how many fraudulent applications have been made for COVID support.
To ensure that fraudsters are held accountable for their actions, the Insolvency Service are working closely with Companies House and the police to identify companies who received bounce back loans but are now struck off the register. Under Section 1006 of the Companies Act 2006, the Insolvency Service can take action against company directors who seek to strike their companies off the register without informing their creditor (in this case, the government who provided Bounce Back loans).
Insolvency Practitioners and investigating Bounce Back Loan Fraud
Whilst the Insolvency Service investigate cases of fraud, company directors facing insolvency should be aware that Insolvency Practitioners are working diligently to ensure that any government support received by a company was used for appropriate purposes.
Whilst there have been examples of organised crime networks taking bounce back loan money only to disappear, it has been more common for opportunistic directors to find ways to provide inaccurate information in order to receive funds, or to misappropriate funds received. Though loans were provided to help businesses to ‘bounce back’ from the challenges brought on by the enforcement of COVID regulations, company directors have found many ways to misuse the scheme.
For example, salary related abuses have been amongst the most common examples of fraud, with company directors using government loans to draw a larger salary than before the pandemic.
Insolvency practitioners will also look for cases of bounce back loans used for personal or family use. Though the regulations around the scheme state that bounce back loans are for business use only, fraudulent directors have used the loan to purchase items for their own personal or family use, or to repay personal loans for themselves or family members.
A further stipulation of bounce back loan regulations is that dividends payments to shareholders should only be taken from distributable reserves of the business, yet investigations have found that directors have used government loans to illegally pay dividends.
Should a company find itself in a state of insolvency, unable to repay debts or other outgoings on time or in full, despite having received government support, Insolvency Practitioners will check that these funds were used legitimately.
Director’s Duties and Liabilities for COVID Support Fraud
Should company directors be found guilty of any misuse or misappropriation of bounce back loans, they will be liable to repay the complete amount taken from government loans. Should directors be unable to repay what they took in full, they stand to be reported to the Insolvency Service and will face full liability for the consequences of their actions.
Directors that took from government loans for personal use will take personal liability and gain a criminal record, as well as potentially facing bankruptcy. In addition to personal liability, the repercussions for COVID support fraud often include director disqualification, which prevents individuals from managing or forming another company without court permission. This disqualification could last as little as 2 or as many as 15 years. Needless to say, this could have an extremely detrimental effect on a director's future career.
Directors should have a strong understanding of their duties and obligations in relation to COVID support schemes, along with the liabilities and consequences they face for failing to follow regulations. If you are unsure about the way you have used a Bounce Back Loan or other COVID support scheme funds, contact an insolvency practitioner for advice - call 02380 651 441 to arrange a free and confidential initial consultation with BEACON.