Director disqualification: Bounce Back Loan abuse in the spotlight

Businesses across the country received almost £80 billion worth of emergency government-backed loans during the Covid pandemic – including more than 1.5 million Bounce Back Loans worth £47 billion. 

The scheme, which ran to March 2021, provided loans of up £50,000 to help small businesses survive the impact of the crisis. 

While the Bounce Back Loans represented a vital lifeline to many businesses, it is important to remember that they are a debt and have terms and conditions attached from the lender.

For example, all directors must ensure their companies maintain proper accounting records, and the use of a loan must always be for the benefit of the business and not personal use. 

Failure to account for how your Bounce Back Loan was used or using it for personal payments can result in you being disqualified as a director or the extension of bankruptcy restrictions.

Insolvency Service cracks down 

As loan repayments kick in, the Insolvency Service is warning that it may lead to an increase in directors and debtors considering formal insolvency, some to avoid repayment.

Bounce Back Loans were particularly vulnerable to fraudulent activity due to the limited due diligence and underwriting checks carried out, and the Insolvency Service is already taking action against those who have abused the support during the pandemic.

One of several recent examples highlighted included N&S Solutions Ltd, a cleaning services company incorporated in June 2018. The company, which had only one director, entered administration in August 2019 with debts of around £150,000. It later entered liquidation on 23 June 2020.

The Insolvency Service investigation found that the individual used N&S Solutions to apply for a Bounce Back Loan of £30,000 on 15 May 2020. This was despite the company being insolvent and had already ceased to trade, meaning there was no prospect of repayment of the loan.

The £30,000 loan was used to pay £29,940 to a single trade creditor but ignored other creditors with sizable debts and the company’s tax liabilities, which amounted to over £94,000.

The director signed a disqualification undertaking which prevents him from acting as a director for nine years. 

Director disqualification solicitors

If you are unsure about the future of your business or the use of a Bounce Back Loan, you should seek specialist legal advice to help you understand all available options. 

If you are facing director disqualification, it can have a significant impact by damaging your career options and reputation, so it is vital to seek professional help as early as possible.

Disqualification can last for up to 15 years, banning you from being a director of any company registered in the UK and from being involved in forming, marketing, or running a business. 

Your details will also be published in the Companies House database of disqualified directors, with the potential to impact your credit rating.

Our legal team is experienced at advising clients on all aspects of director disqualification proceedings and can guide you through this complicated area of the law.