Bounce back loan fraud: three company directors banned

The bounce back loan scheme (BBLS) was part of the financial support package that the government created for businesses back towards the start of the COVID-19 pandemic in the UK. They allowed small-to-medium businesses to borrow between £2,000 and up to 25% of their turnover, with a maximum loan of £50,000 available. They were designed to help businesses that were adversely affected by the pandemic and were essentially commercially available loans that were guaranteed by the government to secure quick access to cash.

There were certain restrictions, too, on what the loans could and couldn’t be used for, such as:

• A bounce back loan could only be used to provide cash flow for the business – not for personal finances;
• You could not use a bounce back loan to remunerate staff at an increased rate;
• You could only apply for a bounce back loan if your company had been ‘adversely affected’ by coronavirus, not if it was already in financial difficulty.

Of course, as often happens with schemes of this kind, there were concerns that it could be abused. For this reason, the Insolvency Service was granted retrospective powers that allowed them to investigate company directors for bounce back loan fraud, even after the company has been dissolved.

The Service has been using those powers recently to punish business owners who have either used unlawful means to acquire a bounce back loan or have misused one granted to them. As these business owners can be seen as looting government-granted financial relief during a national crisis, it’s a given that the price to pay for this kind of fraud is heavy and severe.

It can result in director disqualification – losing the right to become a company director for up to 15 years – alongside, potentially, a prison sentence. You could even find yourself personally liable for the debt.

Crackdown on bounce back loan fraud

Back in August, two limited company directors were brought to book by the Insolvency Service. LV Distributions Ltd and SIO Traders Ltd were erased after it emerged that neither company ever actually traded, and were wound up after documents such as leases and utility bills were falsified to access bounce back loans.

This crack-down has persisted, with GOV.UK revealing in late October that a further three directors had been caught out and faced the consequences of bounce back loan fraud. Between them, they had applied for and misused nearly £100,000 of money from the scheme.

Cleaning company N&S Solutions Ltd entered administration in August 2019 and entered liquidation on 23 June 2020. It had debts of £150,000. On 15 May 2020, company director Rafael Scher applied for a bounce back loan of £30,000 despite the fact that the company was insolvent and had ceased to trade.

The loan was used to pay £29,940 to a single creditor, although other creditors were ignored – as were tax liabilities. Mr Scher has been disqualified from acting as a company director for nine years.

Company director banned

Another business to feel the full force of the Insolvency Service’s new powers is Chucky Chicken, a takeaway in Nottingham that was sold by its owners, Mujeebullah Khan and Muhammed Omair Javaid, way back in December 2019.

However, Mr Khan applied for a £50,000 bounce back loan in the business’s name, many months after the sale. This money was then used to pay a business creditor who was also a relative of Mr Javaid. Both men declared themselves bankrupt on 24 May 2021, citing debts of more than £200,000 including the bounce back loan.

They have signed bankruptcy undertakings that extend their restrictions for eight years, which limits their access to credit as well as prevents them from acting as company directors without first applying to the courts for permission.

Insolvent Service taking no prisoners

Last but not least, the landlord of the Royal Oak in Nuneaton, Malcolm Wilks, was found to have misused bounce back loan funds.

Back in March 2020, Mr Wilks entered into an Individual Voluntary Arrangement (IVA) and started claiming Universal Credit after the pub closed for lockdown. It later reopened again, trading for a few hours per week, before shutting its doors again in November 2020 when restrictions were reintroduced.

On 11 November 2020, he received a £19,000 bounce back loan and, the next day, his IVA’s supervisor terminated their agreement and triggered an Insolvency Services investigation after it emerged that Mr Wilks had only made two payments.

As a result of the investigation, it was revealed that Mr Wilks had transferred almost £17,000 of the loan to his personal bank account, paying £4,100 of it to his ex-girlfriend, and spending £1,120 on online gambling. £3,500 cannot be accounted for as it was withdrawn in cash, and just £6,500 was allocated as wages to himself. He also received other forms of relief that he did not disclose.

Mr Wilks has had to sign a bankruptcy restriction undertaking extending his bankruptcy for eight years.

The Insolvency Service is taking no prisoners when investigating bounce back loan fraud and are following through with their promise of severe consequences.

How contractors can stay compliant

The government spent a lot of money during the pandemic and the Treasury are looking to claw it back at any given opportunity – and finding people who’ve incorrectly claimed COVID support isn’t their only means of doing this.

They are also going to be taking a good long look at contractors’ IR35 statuses to ensure that they are maintaining compliance and don’t potentially owe any tax and NICs.

To ensure you are compliant in your dealings with IR35, it’s worth taking a look at the Kingsbridge IR35 Status Tool if you are still responsible, for example when working for a small client or an overseas client with no link to the UK. It will give you peace of mind and confidence in your status, as well as helping you avoid being open to any accusations of wrongdoing.