During the height of the Coronavirus pandemic, the U.K. government introduced Bounce Back Loans as a means to keep companies afloat. These loans gave struggling companies a much-needed injection of capital, allowing them to purchase stock, maintain key equipment, and keep employees on the payroll. In theory, this would ensure that companies hit particularly hard by the economic disruption would remain open. However, this was not the case for many companies, as Bounce Back Loans were often not enough to remain operational.

Many directors of such companies have, therefore, had to turn to other options. Some may aim to recover their company through restructuring or the use of a business rescue plan, while others might want to close their company instead. In either case, it is vital that directors know the legality surrounding Bounce Back Loans and what it means for their company. Failing to do so could make you vulnerable to accusations of Bounce Back Loan fraud, and the potential penalties that follow.

In this article, Clarke Bell will discuss Bounce Back Loan fraud, what it means for you and your company, and how you can avoid doing it.

What is a Bounce Back Loan?

Bounce Back Loans were introduced as part of the Bounce Back Loan Scheme. These loans aimed to provide struggling companies with a cash injection of up to £50,000, with the hope that this capital would allow the company to continue through the economic turmoil caused by the pandemic. These loans were very accessible, allowing many companies a good chance of obtaining this helpful capital. There was also little risk involved for both borrowers and lenders, as the government guaranteed every Bounce Back Loan granted. However, there was still the expectation of repayment, and loan recipients were expected to make every effort possible to make repayments. Directors need to make sure they do not do anything that would mean they are committing Bounce Back Loan fraud.

What is Bounce Back Loan fraud?

Bounce Back Loan fraud can be split into two categories, as specified by the Cabinet Office. Essentially, these categories refer to the levels of severity of the fraud, the first of which is known as “soft” fraud. This category is applied to cases that are relatively low in seriousness, but still constitute a crime due to deliberate dishonesty. For example, cases of “soft” fraud are described by the Public Accounts Committee as exaggerations of otherwise legitimate claims, with a view to obtaining a loan larger than they are entitled to. Low-severity breaches of the Bounce Back Loan agreement could also fall under this category.

While “soft” Bounce Back Loan fraud is certainly viewed as a problem, the second category is considered to be a much more serious offence. This more severe category of Bounce Back Loan fraud is known as “hard” fraud, and refers to overtly criminal action with the intent to defraud the Bounce Back Loan Scheme on a large scale. This involves actions such as submitting multiple applications for a Bounce Back Loan to different lenders, impersonating an existing, legitimate business with whom the applicant has no connection, and taking out loans and then emigrating, keeping the money that was supposed to help the company.

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Closing through company dissolution

If you are the director of a company that cannot repay its Bounce Back Loan debt, you might consider closing the company as a means to deal with your business debts. How you close your company is vitally important. Dissolving a company is not a viable option for closing a company with Bounce Back Loan debt, or any type of business debt.

Dissolution, also known as a company strike-off, is only available for solvent companies without any outstanding liabilities. This means that it is not an option for companies with an outstanding Bounce Back Loan, with any attempts at dissolution likely being obstructed by the company’s creditors. Repeated attempts at dissolution could even be perceived as an attempt to flee from the debt, which could result in a series of penalties. These penalties include the disqualification of a director’s license for up to 15 years, fines, personal liability for debt, and potentially even a prison sentence in serious cases.

Also Read: Will Bounce Back Loans Become Grants?

Creditors’ Voluntary Liquidation

If you wish to close your company to deal with your Bounce Back Loan debt, it is best to use another method. Using a Creditors’ Voluntary Liquidation (CVL) is one of the most effective methods for an insolvent company, affording directors a series of benefits. Directors will be able to appoint an insolvency practitioner of their choice to the role of liquidator. The liquidator will identify any company assets, dispose of them, and distribute any proceeds to the company’s creditors. Once all distributions are made, the company will be wound up and removed from the Companies House register. Any debt remaining at this point will be written off, assuming none are secured by a personal guarantee. This includes Bounce Back Loan debt. 

If you would like to learn more about CVLs, read our complete guide to the process or give us a call.

What happens if Bounce Back Loan fraud is suspected?

If a director is suspected of Bounce Back Loan fraud, an investigation is likely to be opened into their conduct. This investigation aims to assess whether directors have engaged in misconduct, or breached the Bounce Back Loan agreement. Interviews are likely to be held with anyone suspected of involvement in Bounce Back Loan fraud, and there may even be requests for company accounts and other documents. Additionally, a company may be served with a search warrant if the police deem a search of a premises necessary. However, this can only take place after arrests have been made, if any.

Committing Bounce Back Loan fraud will bring one or several of a series of penalties to guilty directors. The penalties will depend on the severity of fraud discovered, and include the disqualification of a director’s license for up to 15 years, fines, personal liability for company debt, confiscation orders, civil recovery orders, and even a prison sentence.

Clarke Bell can help you

If you have a Bounce Back Loan which you cannot pay back, placing your company into Creditors’ Voluntary Liquidation (CVL) is likely to be the best option for you.

Clarke Bell can help you. 

Our fees are affordable, and we have more than 28 years of experience in helping directors to close their company with the CVL process. We can do the same for you. 

Contact us today for your free, no-obligation advice; and find out exactly what we can do for you.