Bounce Back Loans: staying on the straight and narrow

A quick glance at the Insolvency Service’s website will confirm just how seriously the agency is taking fraud related to the government’s Bounce Back Loan scheme.

Bounce Back Loans, or BBLs, were government-guaranteed loans designed to support businesses through the covid pandemic. Under the rules of the scheme, companies were allowed to borrow up to 25% of their previous year’s turnover, up to a maximum of £50,000.

Because of the speed at which the loans were rolled-out, there was little scrutiny of applications for BBLs. Officials at BEIS, the British Business Bank and the Treasury have since acknowledged that there were risks to the scheme but that these were a result of having to work at speed to respond to the pressure of the first lockdown.

Misuse and the real implications

A key condition for the Bounce Back Loan scheme was that the loan had to be used only for the purposes of the business. In some circumstances this could include the director drawing a reasonable income.

If a BBL was used incorrectly, it could lead to a director being found to be unfit, opening them up not only to disqualification but also to personal liability to repay that loan. There are numerous cases of director’s disqualifications linked to Bounce Back Loan fraud appearing daily in the news. In some cases, a disqualification and repayment aren’t the worst consequences.

Thankfully, the vast majority of Bounce Back Loans were used for the designed purpose. And a huge number of businesses were able to survive as a consequence of this Government support.

However, for many those funds have run out before the business’ marketplace has sufficiently revived. This has led to many needing to discuss options with a professional, safe in the knowledge they have not used the funds fraudulently or incorrectly.

Some published examples of fraudulent use are as follows.

Suspended prison sentence for Bounce Back Loan fraudster

Ben Hamilton, 34, from Middlesbrough, was sentenced to 15 months imprisonment, suspended for 18 months, following abuse of the Bounce Back Loan scheme.

His business, Netelco Ltd, a telecommunications design and installation business based in Bishop Auckland, successfully applied for a £25,000 loan. The loan was paid into the company bank account on 14 May 2020. The following day Hamilton filed paperwork with Companies House to have the business dissolved.

While the company was dissolved in December 2020, it was subsequently identified as a likely Bounce Back Loan fraud case and reopened so that it could be investigated. In addition to the suspended sentence, Hamilton was ordered to pay £2,500 in costs.

11 year ban for exaggerating business turnover

Shafiqur Rahman received an 11-year director’s disqualification for claiming a £25,000 Bounce Back Loan to fund his company, Aspire Sports Coaching & Partners Ltd. This figure was more than 11 times the money his business was entitled to. Rahman spent £20,000 of the loan without being able to prove it had been used to support the company.

An investigation was triggered after the business folded in May 2021. Investigators found that, based on the company’s actual turnover, it should have been eligible for a Bounce Back Loan of £2,000.

Investigators also discovered that Rahman had paid £20,000 out of the company, and had given a false invoice for the amount to liquidators to try to account for the unexplained payment. The business closed with debts of £25,000 – the full amount of the loan money.

What can you do if you are struggling to repay your BBL?

There’s no single answer to this question. If your business becomes insolvent, or you choose to liquidate your company, the insolvency practitioners at FA Simms and Partners, as all insolvency practitioners do, have a legal duty to investigate the causes of the company’s failure.

If you took out a Bounce Back Loan and are unsure if you might have broken the rules, then it’s vital that you seek expert advice. Our licensed insolvency practitioners will be able to assess your situation and advise accordingly. All the possibilities must be duly considered and any likely consequences for directors discussed. These will of course depend on your individual circumstances.

For further advice on Bounce Back Loan repayments, please call our expert team on 01455 555 444 or email [email protected].

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