In April 2020 the Government introduced The Bounce Back Loan Scheme. It aimed to help small businesses survive the financial difficulties brought about by the coronavirus pandemic.
Under the scheme, a small business could apply for a loan from £2,000 up to £50,000 or a maximum of 25% of annual turnover. The loans were 100% guaranteed by the Government although they were provided by commercial lenders.
The scheme was largely criticised as many claimed it was too “quick” and “easy” for companies to obtain the loan leading to its ultimate abuse. All that was required to apply for the loan was an application form consisting of 7 questions and confirmation that the business had been affected by the COVID-19 pandemic but was not in difficulty as at 31 December 2019.
In total, 1.5 million loans worth £47 billion were issued through the initiative, with approximately a quarter of UK businesses having applied. It has also been estimated that over £4.9 billion of the 1.5 million loans granted by the Bounce Back Loan Scheme were fraudulent.
Personal Liability for Directors
Although the loans granted under the bounce back loan scheme did not require directors to enter into a personal guarantee, they are not risk-free. The loan must be used solely in line with business needs.
Directors who misuse the loan for personal gain may find themselves guilty of fraud and personally liable to repay the sum of the loan.
The Insolvency Service have recently expressed their willingness to investigate such matters as they recently published the ban for two directors who abused the bounce back loan scheme for a total of 21 years.
In addition, a director may find themselves at risk if they applied for a Bounce Back Loan under the scheme when the Company concerned was insolvent or shortly after became insolvent.
When a Company enters into a formal insolvency process the appointed insolvency practitioner will investigate the financial activities of the business leading up to its insolvency.
This may give rise to potential claims for misfeasance, a preference and breach of duty if the directors are found to have misused funds in the Company.
Seek Early Advice
Are you a director in receipt of a bounce back loan? Is your company now at risk of insolvency?
Be sure to mitigate your potential liability by seeking insolvency advice early.
If you are a director of a company, liquidator or administrator and require advice about any of the issues raised above, please contact Victoria Dunstall or Annabel Whittaker directly, call us on 0115 9 100 200 or click here to send an email.
Posted on March 15, 2022