A guide to Bounce Back Loan misuse and fraud

The COVID-19 pandemic marked a period of unprecedented economic uncertainty, during which business owners were plagued with financial worries. As such, when the Bounce Back Loan scheme was introduced, it provided a desperate lifeline to businesses to prevent them from plunging into financial difficulty because of the pandemic.

Bounce Back Loans were strictly offered on the basis that they would be used to provide an economic benefit to the business. However, a small fraction of opportunistic business owners fraudulently accessed the loan and disregarded the terms under which the loan was granted.

What is classed as Bounce Back Loan misuse?

According to findings published by Real Business Rescue, billions of pounds worth of Covid-19 Bounce Back Loans were fraudulently used by company directors to make personal purchases, splurge on high-value items and gamble away.

Shaun Barton, National Online Business Operations Director at Real Business Rescue, said:

“Whilst the majority were taken out in good faith to help withstand the effects of the pandemic, our investigation shows that – sadly – in some cases, these loans designed to keep businesses going, and people employed, have been grossly misused.

“At a time where so many businesses are genuinely struggling, and the rising cost of living continues to cause concern for people up and down the country, it is shocking to see billions of pounds in taxpayers’ money lost in the abyss of misuse, negligence, and fraud.”

In 2021, a parliamentary report found that 37 % of Bounce Back loans worth £17 billion would not be repaid due to insolvency, and that 11% of Bounce Back Loans worth £4.9 billion, would be lost to ‘fraud and error’.

Director disqualification for Bounce Back Loan fraud

If a business owner is found to have misused a Bounce Back Loan, they could be heavily fined or disqualified as a company director for up to 15 years. The government are currently on a hunt to publicly reprimand directors who abused the Bounce Back Loan scheme. `This includes targeting directors that fraudulently inflated company turnover to qualify for a Bounce Back Loan or using a Bounce Back Loan for personal use.

If you are disqualified as a company director, you cannot:

• Be a director of a UK-registered company or an overseas company that has UK connections
• Be involved in forming, marketing or operating a company
• Sit on the board of a charity, school or police authority, on a health board or social care body
• Be a pension trustee
• Be a registered social landlord
• Be a solicitor, barrister or accountant

If you fail to abide by these terms, you could be fined or sent to prison for up to 2 years. If you wish to be the director of a company while disqualified, you must seek express permission from the court.

Company dissolution/strike off – a false escape

New legislation was introduced in December 2021 to tackle rogue directors that dissolve a company with debts. This was optimally timed with the tapering of the Bounce Back Loan scheme, for which the government provided 100% security.

If a company enters liquidation as it is insolvent, the government will be required to foot the cost as a result. The measure aims to weed out ingenuine company directors, and in turn, regulates the bill likely to be put forward to the government by lenders in relation to the outstanding Bounce Back Loans of insolvent companies.

The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act grants powers to the Insolvency Service to investigate and disqualify company directors that intentionally dodge their obligations to creditors and Bounce Back Loan lenders by dissolving the company.

Company dissolution is a route suitable for businesses with no outstanding liabilities, including a Bounce Back Loan.

Commenting on the measure, Business Secretary Kwasi Kwarteng said:

“These new powers will curb those rogue directors who seek to avoid paying back their debts, including government loans provided to support businesses and save jobs.

“Government is committed to tackle those who seek to leave the British taxpayer out of pocket by abusing the COVID financial support that has been so vital to businesses.”