The potential abuse of the COVID-19 Government financial support scheme
The Insolvency service is starting to look more deeply into potential abuses of the Covid 19 support scheme. The issue is that directors could potentially face disqualification if it is found that Covid 19 loans were taken out fraudulently.
There are a growing number of Insolvency Service (‘IS’) investigations into the potential abuse of the Bounce Back Loan (‘BBL’) scheme, and other Government funded Covid-19 financial support schemes. This is bound to lead to more directors facing disqualification orders.
At the moment there are no firm statistics on the number of Director Disqualifications caused by abusing the loans and support schemes for COVID-19. But it has been confirmed that the investigations carried out to date have resulted in mid to high bracket periods of disqualifications
But what actually constitutes abuse and what does the new enquiry process look like?
Examples of Covid-19 financial support scheme abuse
Some are to a degree unbelievable and blatant. In one example a director applied and received bounce back loans of £150,000. £50,000 loans were taken out for 3 companies, each one apparently having never traded.
A 13-year Disqualification Undertaking was accepted by the Secretary of State.
In another case, 2 Directors obtained BBLs of £50,000 each for companies that were not turning enough over to qualify, falsifying the figures in their applications.
This resulted in an 11 year disqualification ban for one director and a 10 year ban for the other.
Other cases are even worse
In one instance a director took out 20 BBL’s for companies that were actually dormant at the time. He then used the Million Pounds to buy property, the companies being liquidated to try to hide his misdeeds.
In such circumstances, there is little that can be done to defend the situation and from what we are seeing there could be many other directors that could be in similar circumstances.
The IS’s new process
Because there has been some national disquiet about the way the COVID-19 support loans have been used, the Insolvency service has been compelled to take positive action on the matter.
They have identified a way to improve the targeting and investigation of cases where there has been some potential misuse of one or more Government- backed COVID-19 support schemes.
In these cases, a standard enquiry letter will be issued to the office-holder as part of the IS’s initial review. The IS says:
“The information sought in this letter will enhance case targeting decisions by ensuring the Insolvency Service has the fullest possible summary of the circumstances surrounding the obtaining and disposal of funds through the support scheme(s). This is preferable to opening an investigation simply based on a company having obtained funds from a support scheme, to then establish there is no misconduct associated with that action. The information gathered through these initial enquiries ensures cases can be prioritised and resources can be used effectively.
The standard enquiry letter seeks to establish what support scheme(s) the company accessed, details of the amount received, dates of applications, eligibility for the scheme and evidence of overstatement of turnover.
The enquiries also seek to identify if any support scheme funds were paid to the director(s) or any connected party, what explanations the director has given for how the funds were used, and if the director has since paid money into the company.
Further questions seek to establish if any recovery action is being taken, what level of on-going trading activity there has been since the support scheme funds were received, and if repayments towards any support scheme funds have been made.
Office-holders will also be asked to provide company bank statements and any bank analysis undertaken.”
As you can see, this matter is now being taken very seriously by IS and this means that it is possible that Directors could be contacted regarding the loans that they took out. In such instances, if there appears to be a problem, they would be advised to seek legal assistance at the earliest possible time.
Any Director Who Received Covid-19 financial support could be targeted
Besides the misuse of these loans, there is also a large number of directors who legitimately requested and received BBL/Coronavirus Business Interruption Loan Scheme monies, only for their company to fail later on. It is quite possible that directors in this group will be wrongly targeted for Director Disqualification/financial recovery/punitive action of the types mentioned above, and again, the best advice is to seek help as quickly as possible.
For more information please see https://ndandp.co.uk/director-disqualification/
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