Bounce back loan fraud

Some words of warning for company directors who may have misused these loans

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Where bounce back loans are concerned, the criteria for the application for such a loan were assessed at the point of application based on the best estimate of projected figures and Covid impacts. Estimates are not done with the benefit of hindsight and projections may not materialise.

The verification of eligibility is the responsibility of the bank. The full terms and conditions for the loan applications are available on the British Business Bank website.

However, it is widely known that there is concern about the risk of fraud on the Bounce Back Loan Scheme (BBLS) because claimants were able to self-certify that they met the conditions.

Evidence of where these funds have been misused or obtained fraudulently (or not strictly in accordance with the eligibility conditions at the time) may now be becoming clearer and any actions regarding making a suspicious activity report (SAR) should be based on these considerations – primarily that a professional accountant should not be associated at any time with information that they believe to be wrong or misleading.

Guidance on how to make a SAR (and other AML matters generally) is available for our members at our AML guidance hub and in particular you should refer to the following factsheets:

Technical factsheet: how to submit a good-quality suspicious activity report (SAR) using the NCA SARs online portal

Technical factsheet: suspicious activity reports (SARs)

Technical factsheet: the money-laundering reporting officer

If the company fails and enters into a formal insolvency procedure such as administration or liquidation, an insolvency practitioner must be appointed. As part of their role, the administrator or liquidator will investigate the reasons for the company’s insolvency, including how a bounce back loan has been used.

If they find the loan has not been used in accordance with the terms – an act known as misfeasance – the company directors could be made personally liable for the repayment of the loan. That could put personal assets such as savings, vehicles and property at risk. 

The Bounce Back Loan Scheme was intended to help small businesses that have been financially impacted by the coronavirus outbreak and are struggling to repay their debts. However, even with this additional funding, some companies will still fail, and company directors may be concerned about the potential implications of the loan.

Importantly, a Bounce Back Loan will not prevent liquidating a company as normal. As long as the loan has been used correctly, the company’s debts will be repaid from the sale of assets and any remaining debt will be written off.

The insolvency practitioner will commence an investigation, but as long as directors have fulfilled their duties and the bounce back loan has not been misused, they should not have any issues.

Several cases are coming to light of long bans for directors who have obtained bounce back loans on a fraudulent basis or misused the funds. Please see the following GOV.UK press releases:

Crackdown on directors who dissolve companies to evade debts

Coventry director given 10-year ban for Bounce Back Loan fraud

9-year ban for director who lied to secure Covid-19 financial support