Everything you need to know
This week they announced their latest positive sanctions and results against directors who misused Covid-19 financial relief schemes highlighting three cases in which three directors have received bans for collectively misusing £100,000 of bounce back loan funding.
Can a director be made personally liable for company debts including bounce back loans?
The Insolvency Service found that N&S Solutions Ltd, a cleaning services business with one director – Rafael Scher – entered administration in August 2019 with debts of around £150,000 and was later liquidated on June 23 2020.
Upon further investigations they found that the business applied for a bounce back loan of £30,000 on May 15 2020 despite having ceased trading, being insolvent and having no realistic prospect of repayment.
The bounce back loan was used to pay a single trade creditor debt of £29,940 with other creditors being ignored – making this a preferential payment.
Additionally, the company owed £94,000 to HMRC in unpaid taxes which also went unpaid.
Mr Scher was disqualified from acting as a director for nine years as a result of the investigation.
Two directors ran a Nottingham takeaway called Chunky Chicken until they sold it in December 2019.
One of them then improperly applied for a bounce back loan of £50,000 in the name of the business after the sale and used the money to repay a business creditor who was also a relative of the second director.
Both directors applied for personal bankruptcy on May 24 2021 with debts of over £200,000 including the bounce back loan.
They both agreed to sign bankruptcy undertakings extending personal restrictions for eight years – limiting their access to credit and disqualifying them from acting as company directors without express permission from the court.
The landlord of the Royal Oak pub in Nuneaton, Mr Malcolm Wilks, closed it for lockdown at the start of the pandemic in March 2020 and entered into an Individual Voluntary Arrangement (IVA) as a result.
The pub was able to reopen later and traded for a few hours a week until it finally closed for good in November 2020 due to the reintroduction of Covid-19 restrictions.
Mr Wilks received a bounce back loan of £19,000 on November 11 2020 and a day later had his IVA agreement terminated by his supervisor after the Insolvency Service received confirmation that he had only made two of the agreed repayments.
Further investigations revealed that of the bounce back loan only £6,500 was used for legitimate business purposes which was allocated as wages for himself to cover the period when he wasn’t working in the pub.
£1,100 in business rates refunds were also received in December 2020 weeks prior to Mr Wilks declaring bankruptcy with a further £10,500 being received after this date that was also not disclosed to the official receiver.
Mr Wilks signed a bankruptcy restriction undertaking extending the duration of his bankruptcy for a further eight years.
Alan Draycott, the Deputy Official Receiver said: “The Government loan schemes have provided a lifeline to millions of businesses across the UK – helping them to continue trading during the pandemic and protecting millions of jobs.
“As these three cases show, the Insolvency Service will not hesitate to investigate and use our powers against those who abused the Covid-19 support schemes.”
Earlier this week it was confirmed that the government was using more technological solutions to trace possible financial anomalies including Covid related fraud.
AI based systems such as Quantexa are being implemented to scan the vast amounts of data the government, HMRC and the Insolvency Service hold on companies to find discrepancies and investigate them further.
Quantexa CEO Vishal Marria said: “The Covid loan schemes were designed to help the nation at a time of deep economic need, and we are honoured our technology is supporting the government’s tenacious efforts to fight fraud.”
Act now – before the insolvency service does
Chris Horner, Insolvency Director with BusinessRescueExpert.co.uk said: “Every director has a duty to ensure their companies maintain proper accounting records.
“In the terms and conditions of the original bounce back loan they took out, it states that it must be for the benefit of the business and never for personal use.
“The Insolvency Service have always made it quite clear that a failure to account for how a bounce back loan was used or using it for personal or preferential payment to creditors could result in disqualification for as long as 15 years.
“If a business undergoes an insolvency procedure such as liquidation – our job as an insolvency practitioner is to produce a report on how the directors acted prior to the event. If there are clear and consistent records, then it makes our job easier because we can see that the money was used for legitimate purposes and we’ll be happy to say so.
“Any business that’s undergoing financial turbulence right now should get some advice because there is a way through it.
If they leave it too late however, it might not end how they want it to.”
Winter is coming
With a difficult winter trading period approaching and the Insolvency Service and HMRC stepping up their investigations and enforcement actions, directors and business owners could be forgiven for feeling that they’re under siege.
But help could be closer at hand than they realise.
Once they get a clearer understanding of the situation facing the business, they will be able to work with the directors or owners to draw up an action plan for dealing with creditors and other outstanding financial obstacles.
They might find they have more options than they thought but only if they act quickly and get in touch.