Another director goes to prison for fraudulently claiming money then closing business down

According to the latest official figures the amount of bounce back loans fully repaid is just 13% of the total amount lent to companies during the pandemic. 

A total of £46.9 billion was loaned between 2020 and 2021 with £6 billion having been settled in full from total outstanding loans. 

Of the remaining £40.9 billion, the majority of it is being repaid on schedule with just over 5% of companies currently in arrears with their repayments.

This is equivalent to £1.88 billion worth of loans with an additional £580 million of loans that have defaulted which have not been made into a claim.  An additional £600 million has been claimed but has not yet been classed as settled. 

Out of the total 1.6 million loan applications, just 62,380 were refused by lenders as they thought they would not be repaid which prevented an additional £2.2 billion loss to the Treasury. 

Up to April 12th this year, 831 company directors had been banned by the Insolvency Service due to fraudulently obtaining loans which was an 80% increase from the previous year.  The average length of disqualification for them being ten years.

Since 2021, the number of directors banned for abusing the covid loan system is 1,430. 

Bounce Back Loans accounted for over half the value of business loans drawn down during the pandemic but the larger loan schemes were not immune to fraud either. 

The Coronavirus Business Interruption Loan Scheme (CBILS) accounted for £25.8 billion of borrowing for larger businesses. 38% of this has been paid back with only 1.49% in arrears and a further 1.2% in default.  

The Coronavirus Large Business Interruptions Loan Scheme (CLBILS) lent £4.5 billion in total but there has been no fraud detected in this category to date. 

Dean Beale, chief executive of the Insolvency Service said: “Tackling Bounce Back Loan misconduct is a key priority for the Insolvency Service and we are determined to use all our available powers to remove rogue company directors from the corporate arena.

“It is important the Insolvency Service is taking such robust action to clamp down on directors who abused Covid support schemes and took from the public purse during the worst global pandemic for 100 years.

“We have teams dedicated solely to investigating Bounce Back Loan misconduct that are committed to taking action against those who provided misleading information to receive money they were not entitled to.”

This is in the week that a director was jailed for 18 months for fraudulently obtaining a bounce back loan for his business then dissolving it on the day he received the money. 

Syed Hussain from Matlock operated a curry house called Moza but dissolved the operating company (Magic of Spice Ltd) on the same day as he obtained a £50,000 bounce back loan.  

He admitted that his business was struggling and that he had overstated his turnover when applying for the loan. He used the loan for personal purposes and transferred more than half of the funds to family members.

As well as being found guilty of false representation and failing to inform a creditor about a voluntary striking off application, contrary to the Companies Act 2006. 

He was ordered to repay £36,200 and disqualified from being a company director for three years. If he fails to repay the amount in full then he will receive another 18 months imprisonment. 

Mark Stephens, Chief Investigator at the Insolvency Service, said: “His behaviour in failing to notify the bank when he was applying to have his company struck off the register was equally calculated and pre-planned. 

“The Insolvency Service will not tolerate deliberate abuse of the public purse which is why Hussain now faces a financial penalty to go with the time he has spent behind bars.”

The vast majority of directors did the right thing in the pandemic to keep their business going. 

The ability to get funding of up to £50,000 depending on turnover was a lifeline for many firms during unprecedented and uncertain times. 

But now they could be a millstone that is holding the business back. 

If you’re struggling to make your next bounce back loan repayment then you should get in touch with us as soon as you can. 

We offer a free initial consultation to talk about what you can do to improve your situation and if a process such as administration or a CVL might be the best way for you to proceed. 

Don’t waste another minute worrying about it – act now and let us do what we can to help.