Craig Allison

In April 2020, at the outset of the pandemic, the Bounce Back Loan Scheme (BBLS) was initiated to help small businesses’ cashflow throughout the pandemic. The conditions were that it must be repaid and could not be used for personal purposes. The business must also have been trading and not been in distress prior to March 2020.

Failure to repay could lead to the company being investigated by the Insolvency Service which would determine whether the BBLS was abused. Investigations into misuse are now starting in earnest.

Amendments to the Company Directors Disqualification Act 1986 now provide powers for the court to issue Disqualification Orders against directors of companies that have been dissolved without first being insolvent.

These new powers allow the Insolvency Service to investigate directors without a formal insolvency process, for example where a director has abused the dissolution process and walked away from paying the company’s debts.

Directors can face sanctions including being disqualified as a company director for up to 15 years or, in the most serious of cases, prosecution.

Craig Allison, senior manager in Wylie & Bisset’s insolvency team, notes that Insolvency Practitioners who have been appointed in the insolvency of a company are now tasked with undertaking thorough investigations where the BBLS has been used.

Mr Allison said: “While this does not automatically mean that the scheme has been abused, it does place a degree of scrutiny on the Insolvency Practitioner, and the company in turn.

“Many directors who may have abused the scheme appear to have buried their heads in the sand, hoping that the problem will go away on its own. Unfortunately for them, it is more likely that any issues will come back to haunt them.

“Directors who have misused the coronavirus financial support scheme should seek advice from their accountant, or a licensed Insolvency Practitioner as soon as possible. It is probable that some recompense will be required, but choosing to ignore the issue is likely to end in some form of action by the Insolvency Service.”

Mr Allison suggests that the problem does not end with the Insolvency Service. He added: “HMRC is effectively blocking any attempts to dissolve companies where there is an outstanding BBL, CBILS or CLBILS loan, so while the new powers afforded to the Insolvency Service may be effective in slapping directors with bans post-dissolution, it is possible that they will not need to rely on them in the majority of cases,” he said.

“In this scenario there is also a very real prospect of a company being wound up and a liquidator appointed. Liquidators are obligated to seek repayment of the debt where there has been foul play, and if the director is less than forthcoming it could mean some form of legal action and, ultimately, bankruptcy which brings with it a whole new set of problems for them.

“I’d imagine the last thing a director wants following the liquidation of their company is a trustee in bankruptcy poking around their personal financial affairs. It is worth reiterating that if directors have any concerns, they should seek advice sooner, rather than later.”