Fines, prison sentences and Director Disqualification for directors who abused the Bounce Back Loan Scheme

Antony Batty, Licensed Insolvency Practitioner, comments on the Insolvency Service’s latest statistics

We have commented in recent posts, and below, about the Insolvency Service bringing criminal charges against directors who abused the various pandemic financial support schemes. During 2022-23, they brought criminal prosecutions against six directors in for COVID-19 related misconduct. All of the prosecutions resulted in a conviction and resulted in immediate imprisonment in three cases. In addition, the Insolvency Service also issued director disqualifications to 932 directors during 2022-23, of which 459 were cases involving Covid-19 financial support scheme abuse. It is also the case that directors guilty of COVID-19 related misconduct are being hit with longer disqualification periods. The average length of bans handed out to directors in 2022-23 was seven years four months, up from five years ten months in 2021-22. As Dave Magrath, Director of Enforcement at the Insolvency Service has said:

“These fraudsters are just the latest to find out that we will not hesitate to take firm action where we uncover such abuse, and this can ultimately result in a jail sentence.”

A recent case resulted in a fine and a custodial sentence

The recent case of Ben Hamilton, a director of a company which claimed a £25,000 Bounce Back Loan (“BBL”), is the latest example of the Courts convicting a Director under the Companies Act, following abuse of the Bounce Back Loan Financial Support Scheme in 2020. In this case, Mr Hamilton had repaid the loan in full but was still fined £2,500 and given a 15-month prison sentence, which fortunately for Mr Hamilton was suspended for 18 months. Licensed insolvency practitioner Antony Batty advises directors to take early, formal advice if they are struggling to repay a BBL or are worried that they may have fallen foul of the scheme, inadvertently or otherwise.

The details of this case

The Insolvency Service states:

“Mr Hamilton was a director of Netelco Ltd, a telecommunications design and installation business based in Bishop Auckland.

The company had been incorporated in 2018 and in May 2020 Hamilton applied for a £25,000 Bounce Back Loan from his bank on behalf of his business. Under the Bounce Back Loan scheme, genuine businesses impacted by the pandemic could take out interest-free taxpayer-backed loans of up to £50,000.

The loan was paid into the company bank account on 14 May 2020 and the following day, Mr Hamilton filed paperwork with Companies House to have the business dissolved.

The striking-off application to dissolve the company was explicit that interested parties and creditors, such as a bank with an outstanding loan, must be notified within seven days of making an application to dissolve a company. The form also highlighted that failure to notify interested parties is a criminal offence, however Mr Hamilton did not follow these rules.

The company was dissolved in December 2020 and was subsequently identified as a likely Bounce Back Loan fraud as part of the government’s forensic counter-fraud work.

Mr. Hamilton did not co-operate with the Insolvency Service criminal investigation team, nor attend an interview when given the opportunity. Only when the Insolvency Service obtained a Proceeds of Crime Act restraining order on his bank accounts did he engage with the investigation, at which point he repaid the Bounce Back Loan in full.”

Antony Batty, Licensed Insolvency Practitioner comments

“The Insolvency Service’s statistics show how seriously the Government is taking the business of pursuing directors who have abused the various Covid-19 pandemic financial support schemes. The above case specifically highlights the need to deal with BBLs correctly and also the risks of applying to Strike off a Company rather than appointing a Licensed Insolvency Practitioner to wind it up via a formal Members Voluntary Liquidation (solvent) or Creditors Voluntary Liquidation (Insolvent) Process.

The Government recognises that some companies who took out BBLs may not survive but expect such companies to be formally Liquidated, and an investigation to be conducted by the liquidator – a Licensed Insolvency Practitioner – into the use of the BBL, or indeed any pandemic financial support scheme. The vast majority of BBLs were used to support businesses through the Pandemic and were used to pay rent, staff costs and overheads. However, we have come across numerous examples of possible abuse, for example:

If directors are to avoid director disqualification and/or prosecution for any such abuse, 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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