The Great Bounce Back Loan Recovery

However, a recent MP’s report has found that a potential £5 billion has been lost to fraud. In addition to this, it’s estimate that 4% of businesses that took out a BBL have defaulted on their loan, with a further 7.4% in arrears - adding another £5.1 billion to the total amount potentially lost so far.

This article looks at what the government is doing to claw back these lost funds and why your clients with outstanding BBLs need to play by the rules.

What’s being done to recover BBLs?

The government is now making serious efforts to recover funds lost to fraud during the pandemic, with £210 million dedicated to HMRC and £510 million for the DWP to crack down on mis-claimers. In August 2022, the government also launched the Public Sector Fraud Authority to tackle fraud committed against the public purse.

There have been multiple, highly publicised cases in the media regarding the disqualification of directors who have been found to have misspent their BBL, with the Insolvency Service playing a commanding role in the prosecutions.

Alongside the government, banks and regulated professionals will also be expected to spot the dishonest use of Bounce Back Loans. In addition to upholding their professional ethics, there is a requirement under anti-money laundering laws for suspected illegal activity to be reported immediately to the government.

The Insolvency Service has been granted enhanced powers to tackle directors who dissolve their company to avoid paying debts, including a BBL. It might be that, in many of these cases, the company directors spent their loans appropriately and with good intention. But with inflation, staff shortages and skyrocketing fuel prices, they’ve simply not been able to recover their business.

Unfortunately for these directors, any business that took out a BBL is obliged to repay it.

What options do your clients have?

If you have a client that can’t repay a Bounce Back Loan, the company directors should seriously consider taking advice from a regulated professional regarding the options for their company. In some situations, if your client is in an insolvent position, a company liquidation may be the only option.

By going through a company liquidation process, the money a company owes is settled, as far as possible, from any value in the company and its assets. The outstanding amounts are left unpaid.

As part of the liquidation process, the liquidator (who must be a licensed insolvency practitioner) has a legal obligation to investigate the causes behind the company’s failure. Speaking from first-hand experience, these investigations have led our industry into uncharted territory: it’s taken deep knowledge of insolvency law and guidance, as well as common sense, to decide whether a director has been dishonest or just unfortunate.

Striking off a company is an alternative, if your client plays by the rules. Along with the important procedures concerning HMRC, agreement from creditors, accounts and staff, there’s the added complexity of outstanding BBLs.

If your client has an outstanding BBL they will most likely have their application denied, as the government - the guarantor in this situation - will object to striking off proceedings where there is an outstanding BBL.

If a company director does manage to strike their company off, they then run the risk of having it reinstated by the government so that they can be investigated and potentially prosecuted for dishonest behaviour.

Has your client misspent their BBL?

If your client received a BBL and spent it on things other than their business or drawing an appropriate income, they need to seek professional advice as soon as possible to avoid the possible consequences.

There are an increasing number of cases being highlighted by the press in which directors have been disqualified for the misuse of a BBL. The Insolvency Service is also able to issue a Compensation Order to reclaim funds from disqualified directors.

If your client is found to have committed other criminal offences or regulatory breaches as part of an investigation, the Insolvency Service is likely to refer them to other authorities for further investigation and possible prosecution.

In some extreme cases, they could get time behind bars. In June 2022, Abdulzarzag Zagroba was the first person to receive jail time for misuse of a BBL, as a result of an investigation by the Insolvency Service.

You should also be aware that if, during an insolvency investigation, it’s found that you were aware of your client’s fraud, you may also face investigation under anti-money laundering regulations.

What advice should you give clients?

There is no single answer to the question of how to handle an unmanageable BBL. It’s important for company directors to understand that, if they are forced to default on a BBL, help is out there and they should seek it as soon as possible.

As one of the people closest to their business, you’re best placed to encourage them and guide them on making the best decisions for their company’s - and their own - future. They should bear in mind that a company that would be viable without its debt repayments, could use a formal insolvency process to restart without the baggage.