Judge orders director of gift company to repay £43,500 via a Compensation Order for a falsely obtained Bounce Back Loan (BBL)

But what can directors who legitimately took out a BBL do if they cannot repay?

The Insolvency Service will always investigate directors of failed companies who it believes falsely obtained a BBL and/or misused the funds once received, as this recent example shows, where the outcome was a significant compensation order and a period of director disqualification for the director. The penalties can be high.

It is worth remembering that Bounce Back Loan investigations are triggered typically when a Liquidator undertakes their Director Conduct Report – a statutory requirement – for the Insolvency Service on behalf of the Secretary of State for the Department for Business and Trade, and finds evidence of misuse. Insolvency Practitioners will stringently review a BBL – how it was applied for and what it was used for when a company is looking at liquidation. If a director is concerned about a BBL, the earlier advice is taken, the better.

In this article we look at this case in more detail and then comment on what directors who took out a BBL legitimately can do if they cannot repay it.

The details of this case

In this case, Grisha Valchev, the director of Health and Tasty Limited was ordered to repay £43,570 after abusing the Bounce Back Loan scheme. In addition to the compensation order, the judge also disqualified Valchev as a director for nine years.

Valchev was a director of Healthy & Tasty Ltd, a north London-based gift company selling fruit baskets, chocolates, hampers and flowers.

Healthy & Tasty Ltd went into liquidation in July 2021, triggering an investigation by the Insolvency Service, following the Liquidator’s Director Conduct Report which uncovered the abuse of the loan scheme.

On 6 September 2023, District Judge Geddes at the High Court of Justice Business and Property Courts in Leeds imposed the order and disqualified Valchev, after hearing that the director had given false information to claim the maximum Bounce Back Loan amount of £50,000 in May 2020.

The company’s actual turnover on which the loan should have been based was around £35,400*, which meant Healthy & Tasty Ltd had been entitled to a BBL of less than £9,000, and had ultimately received more than five times that amount.

(*With Bounce Back Loans, companies could apply for a loan of between £2,000 and £50,000, up to a maximum of 25% of their 2019 turnover.)

Valchev argued in court that he was unable to repay the money, but the Judge rejected this, and ordered him to repay £43,570, which included the excess amount that he had falsely claimed, plus interest.

As Rob Clarke, Chief Investigator of Insolvent Investigations North at the Insolvency Service, said:

“Grisha Valchev abused taxpayers’ money to give his company an unfair advantage over other businesses impacted by Covid-19.

Where there have been similar cases of abuse by a company director, we will be seeking further Compensation Orders and disqualifications.”

What happens if a Company is struggling to repay its BBL?

The government has accepted that some companies who legitimately took out an BBL and used it correctly will be facing difficulties in repaying these loans and have introduced a Pay As You Grow (PAYG) scheme to try and combat some of these challenges.

The PAYG scheme was introduced as part of the Winter Economy Plan and is designed to help companies who have started to repay their Bounce Back Loans but are having difficulty in meeting the monthly repayments. There are three main lifelines offered to companies through the PAYG scheme:

Bounce Back Loans cannot be written off while a company is still active and trading, The only way a Bounce Back Loan will be written off is if the company becomes insolvent and subsequently enters liquidation (usually through a Creditors’ Voluntary Liquidation) and no evidence of a fraudulent application or misuse of the loan is uncovered by the Liquidator.

If any such abuse of the BBL system is uncovered, and directors are to avoid the possibility of compensation orders, director disqualification and even a criminal prosecution, they need to take formal advice, which will normally require the repayment of the BBL on terms to be agreed. We would strongly advise directors in such a position not to ‘put their heads in the sand’ but to seek advice early and to try to deal with the situation in an open and transparent way.

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