Directors of companies that are struggling to repay Covid-era loans could be sleepwalking into director disqualifications this year if they don’t get the right advice about how to handle these debts.
Chris Horner, Insolvency Director with BusinessRescueExpert, said: “Bounce Back Loan repayment difficulty hasn’t gone away especially with additional tax burdens anticipated for April 1st nor the Insolvency Service’s stated objective to pursue director disqualifications linked to them.
“The past five years have been an ongoing storm for business owners and directors that hasn’t abated and still shows no signs of abating in 2025.
“My worry is for directors who are already working flat out to protect and improve their businesses and doing their best to service any legacy debts from the Covid-era.
“With so many plates to spin and debts to service, it’s conceivable that they don’t get good, impartial advice early enough and sleepwalk into a disqualification.”
There were 1,222 directors disqualifications in the financial year for 2023/24. Of these 68% were related to Covid-era loans.
So far the ratio in 2024/25 is already at 76.5% with a total expected to exceed 1,200 total disqualifications by the time the period concludes on March 31st 2025.
The use of an insolvency process to avoid repaying potentially misused pandemic related support is likely to be less frequent this year given the amount of time that has elapsed since.
Compensation orders
Directors who misused funds would have been unlikely to have made substantial repayments on bounce back loans before liquidating. Also if a director is disqualified, they may be susceptible to a compensation order even if they have already lost a sum of money because they have been involved with an insolvent company.
Chris Horner continues: “I firmly believe that the rate of disqualifications related to Covid-era loan abuse will be higher than ever. Also the average length of director disqualifications is rising significantly and is currently at 9.3 years, compared to 7.4 years only two years ago – an increase of 25.7%
“We’re seeing the Insolvency Service recommend a higher proportion of cases for disqualification action, notwithstanding that directors involved may have already settled (without admission) any potential claims advanced against them in the name of the company or its liquidators.
“In the past, such evidence of willingness to compensate any disaffected creditors would often have tipped the scales when considering whether the public interest justified disqualification.
“Directors could perhaps be forgiven, therefore, for concluding that the Insolvency Service have shifted the goalposts, at least where Covid related loans are involved.
“Most directors welcome action being taken against deliberately dishonest people who applied for these loans with ill intent. Action against them enhances compensation rates for creditors and the public and acts as a deterrent in future.
“But many loans were taken out with a self-certified application when published guidance was confusing and even rudimentary eligibility checks by lenders would have revealed if a business was ineligible through published accounts stating a turnover figure.
“It’s clear that if such a situation were to arise again in the future then additional checks and balances would be involved.
“Directors of companies that are heading towards insolvency and are unlikely or unable to repay their Covid-era lending should get some official advice now before it’s too late.
“They absolutely should avoid the temptation to try and dissolve the company or sell it to an unregulated company for a nominal amount promising to manage the problem away – because they won’t and will end up in a lot of trouble.”
If you’re worried about being able to meet all of your company’s financial obligations – Covid-era or not – then get in touch with us today.
We offer a free initial consultation for any director who wants to talk through how best to manage their current situation and find out what options they have to act on.
You might have more room to manoeuvre than you thought or can pursue a strategy you haven’t even thought of – but only if you arrange a call quickly.