Director disqualification and bounce back loans

Our specialist disqualification team is here to help directors banned over covid loans. We set out information below which we think you will find useful.  Whatever your issue – call our friendly team today.  

The Bounce Back Loan Scheme

The Bounce Back Loan Scheme was introduced in March 2021 to help SMEs during the Covid pandemic. Businesses could borrow up to £50,000 with no fees or interest payable for the first 12 months. More than 1.5 million Bounce Back Loans totalling over £47 billion were given by the government. The government guaranteed 100% of the loan. The interest rate on the debt is 2.5% per year.

The Bounce Back Loan Scheme has now closed and businesses which borrowed Bounce Back loans are now expected to start repaying them.

However, the latest Bounce Back Loan government factsheet shows that there has been a lot of concern raised about alleged wrongdoing and action is being taken to recover money wrongly paid out. This is an issue which is commonly in the news – as this article from the BBC demonstrates. This focus is likely to remain for a number of years whilst the Bounce Back Loan repayments work their way through the system. We are seeing more and more directors banned over covid loans. 

Insolvency Service investigations into Bounce Back loans

We are seeing an increasing number of investigations by the Insolvency Service into Bounce Back Loans where companies have gone into liquidation since the loan was taken out.

• This is leading to an increasing number of director disqualification claims being issued by the Insolvency Service and increasing numbers of directors banned over COVID loans.
• There is clearly a government drive to recover Bounce Back loans and to punish those individuals who they think wrongly applied for them or used the money they received for other purposes. Directors banned covid loans are very much on the government radar.
• The most recent example of bounce back loan disqualifications can be seen in the recent publication on the Government website on 1st September 2023 where a director was banned from running businesses for a total of 13 years after abusing £50,000 worth of government-backed loans.

Don’t panic if you are threatened with Bounce Back Loan disqualification – we can help

Our experience over 20 years helping directors shows that the Insolvency Service takes a very broad-brush approach to seeking disqualification bans.

ALWAYS REMEMBER – just because a company went into liquidation owing a Bounce Back Loan does not mean that a director disqualification ban is automatic. Directors banned over covid loans isn’t always the automatic outcome of an investigation. 

If you have received the threat of disqualification from the Insolvency Service (usually by way of a section 16 letter) it is vital to take early legal advice and respond carefully. Taking early action can avoid a director ban altogether.

On what basis can a director be disqualified? Misconduct explained

For a director disqualification ban to be made under the Company Director Disqualification Act 1986, the Insolvency Service has to show that the director concerned was involved in some form of misconduct, and the misconduct is enough that they are unfit to hold the position of director moving forward. If these conditions are met – the director can be disqualified for periods of between 2 to 15 years.

There are many different grounds for a disqualification order being made and many different types of misconduct for which a director can be banned under section 6 of the Company Director Disqualification Act 1986. Directors banned over Covid loans is just one of them. Our expert team has dealt with all conceivable types of misconduct over the last 20 years – examples of which include:

• Failure to keep proper accounting records.
• Failure to pay HMRC tax liabilities.
• Being incompetent in your role as director.
• Undertaking fraudulent activity.
• Failure to keep proper records at Companies House.
• Excessive pay and remuneration as directors.
• Abuse of a director loan account.
• Acting contrary to the public interest.
• Acting in breach of financial regulations.
• Inappropriate delegation of roles and responsibilities.
• Failure to keep informed and properly supervise.
• Continuation of a failed business model.

Added to this list now is misuse of Bounce Back Loans and directors banned covid loans. This is resulting in increasing amounts of directors banned over covid loans .

Does director disqualification automatically apply to Bounce Back loan insolvency?

The answer to this is NO.

If a company took Bounce Back Loans but later went into insolvency, it doesn’t automatically lead to Bounce Back Loan director disqualification and directors banned over covid loans. Bounce Back Loan insolvency can occur for a wide variety of reasons and Bounce Back Loans were taken by businesses to get them through a very difficult trading period.

Therefore, every case needs to be examined on its own facts. There is no one size fits all and just because your company suffered from Bounce Back Loan insolvency, does not mean there is an automatic directors banned over covid loans situation.

Central to dealing with Bounce Back Loan director disqualification claims is

• looking at the purpose of the Bounce Back Loan and why it was taken out;
• was the Bounce Back Loan for legitimate business purposes; and
• what the Bounce Back Loan was actually spent on.

In each case it will therefore be crucial to look at the application process and what the money was ultimately used for. Many of the misconduct allegations made by the Insolvency Service are in relation to Bounce Back Loans which appear to have been either fraudulently taken out with no intention of them being spent on the business or where the Bounce Back Loan was spent for purposes other than the original application.

Take early control of Bounce Back Loan director disqualification claims – let us help

It is vital to take early control of any threat of director disqualification. Failure to do so will only make things worse and lead to directors banned over covid loans. Cases like this won’t just go away.  

Helpful tips include

• If you receive an initial enquiry from the Insolvency Service (commonly known as a Section 16 letter) do not feel rushed into responding, particularly if you do not have access to all the company records.
• You are entitled to see the records of the business before responding. Do you have all the company records to support both the application for the Bounce Back Loan, the reasons why the Bounce Back Loan was applied for and how it was then spent? If not – you need to get them before responding;
• Ask for time to take legal advice – you are entitled to do this. Don’t get rushed into a directors banned covid loan situation.
• Do not be rushed in to completing any Insolvency Service Questionnaire. Often, directors with the best of intentions fill out these forms incorrectly and this is then used against the director later on. It is much better to take expert legal advice and complete the early enquiry forms properly. There is every opportunity to have the claim withdrawn early on if these enquiries are dealt with properly;
• If there was a change in purpose for the Bounce Back Loan and it was spent on different purposes, can these be justified and do you have evidence for these?
• If all of the Bounce Back Loan or part of the Bounce Back Loan was used for personal remuneration, can these payments be justified and can the director show that there was an entitlement to these monies?

How we can help you

Whatever stage of the claim you are at we can help:

• We can conduct a proper review of the allegations against you and help draft a detailed response to the initial investigation enquiries and complete the relevant questionnaires.
• We can ensure access to the company records if you no longer have them.
• We can defend any formal director disqualification legal proceedings arising out of Bounce Back Loan insolvency under the terms of the Company Director Disqualification Act 1986. Remember – directors banned over covid loans isn’t simply automatic if proceedings have been issued.
• We can advise you on the consequences of disqualification and any personal liability arising from the bounce back loan insolvency.
• We can advise you whether you will be personally liable to repay money under the new style Compensation Order Regime. This is a new regime which first appeared in the Small Business, Enterprise and Employment Act 2015.
• We can help you negotiate a voluntary disqualification undertaking if that is appropriate – and make sure you minimise the length of any ban and reduce the risk of personal claims for repayment of money at the same time.
• We can help you become a director even if a disqualification order is made. Did you know that it is possible to apply to remain as a director despite a disqualification ban? We make these applications under section 17 of the Company Director Disqualification Act 1986. AT FRANCIS WILKS & JONES, WE HAVE A 100% RECORD IN THESE TYPES OF COURT APPLICATIONS DATING BACK TO 2002.
• We can help defend any associated claims from the liquidator of the company.
• We can help defend any claims from HMRC.
• We can help you find the right funding option to help defend the threat of disqualification.

Francis Wilks & Jones is the firm for you

Whilst a number of law firms out there say that they carry out director disqualification work – Francis Wilks & Jones is the genuine No 1 law firm in the country. We have been advising directors for over 20 years and have a wonderful track record in dealing with these types of claims.

• OUR CASE STUDIES – WE ARE PROUD TO SHARE THE RESULTS OF OUR HARD WORK WITH YOU.
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One of the most astute appointments I have ever made.

A company director we successfully defended against disqualification

I would strongly recommend using FWJ for director disqualification matters. Tactically and commercially they played it just right and I am now able to get on with my business life without the worry of disqualification hanging over me.

A director we defended against a disqualification claim

Whatever you decide to do next, do pick up the phone to us BEFORE MAKING A DECISION. We are sure that once you speak to our director disqualification experts, you will know that we are the firm to help.  Call us today for your free consultation. Remember – directors banned over Covid loans isn’t automatic. 

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Bounce Back Loan bankruptcy

Our brilliant team often advises individuals about the dangers of bankruptcy arising from Bounce Back loans.

We have also seen a rise in bankruptcy restriction orders and bankruptcy restriction undertakings too.

IF YOU HAVE BEEN THREATENED WITH BOUNCE BACK LOAN BANKRUPTCY, BANKRUPTCY RESTRICITON ORDERS OR ASKED TO SIGN A BANKRUPTCY RESTRICTION UNDERTAKING – SPEAK TO US TODAY.

Bounce Back loans and liquidation

When a director of a company realises that the company is struggling to pay its debts, they may seek the advice of an insolvency practitioner to provide advice and solutions moving forward. One of these solutions may be to ‘liquidate’ the company if it is insolvent and cannot pay its debts.

In brief, the following will then happen:

• the director of the company will hand over control of the company to the insolvency practitioner (later referred to as the ‘liquidator’)
• the liquidator will wrap up the affairs of the company
• the liquidator will ensure as much money is raised as possible to pay any creditors of the company; and
• the liquidator will investigate the conduct of the directors.

One of these creditors, as a result of the COVID-19 pandemic, may be a bank (or lending institution) that lent the company a bounce back loan.

From our day to day experience dealing with these types of cases, it is unlikely that the liquidator will bring a claim to recover the bounce back loan for payment to the creditors themselves.  However, the liquidator is obliged to report to the Insolvency Service about the conduct of the directors of the company at the time of the liquidation. On this report, they will have to indicate that there was a bounce back loan and, following this, the Insolvency Service itself has the option to investigate the conduct of the directors.

The Insolvency Service may itself try and recover a bounce back loan from the director and we deal with this in our “Compensation Orders” section below.

Bounce Back Loan (‘BBL’) compensation claims

Compensation orders are part of a scheme introduced in 2015 under the Small Business, Enterprise and Employment Act 2015 that has been rarely used until the COVID-19 pandemic.

In order to be at risk a director must:

• be disqualified as a director; and
• have engaged in conduct which has caused loss to one or more creditors.

The Secretary of State has two years from the commencement of director disqualification to bring the claim.

Normally the liquidator appointed over the insolvent company seeks to recover most of the debts and “misplaced” money in the liquidation for the general benefit of creditors.

However, the Insolvency Service appears to now be pursuing a policy of recovering the bounce back loan element directly through the use of Compensation Orders. If the bounce back loan has been illegitimately applied for, or the monies have not been used for the benefit of the company, then the Insolvency Service will likely threaten a compensation order against a director. For more information about the Government’s position on Compensation Orders read here.

These are separate proceedings, and a director should consider legal advice very seriously or they can find themselves liable for the full debt of the bounce back loan.

Personal liability and Bounce Back loans – Are you personally liable for a Bounce Back Loan?

Generally speaking, when a director sets up a company, this company will be a separate entity from the director that can hold its own property, contract on its own behalf, and sue or be sued. However, upon the liquidation of this company, the barrier between the director and the company can be ‘pierced’ and this can result in the director being held liable for the debts of the company.

It is the duty of the liquidator to investigate the affairs of the company and, if they find any misconduct (such as money being paid out to friends and family, or assets being sold for much smaller sums than they are worth), then they will seek to ‘unravel’ these transactions or payments and claim the money back from the director.

The same, essentially, happens with a bounce back loan, but rather the Insolvency Service will be investigating the director’s conduct. As discussed above,

• the Insolvency Service (if they suspect misconduct) will likely bring proceedings against the director for disqualification.
• if they further identify a bounce back loan, they may then bring proceedings also for compensation to be paid by the director to the company for any part of the bounce back loan that has been incorrectly handled.
• in this way, the actions of the director can attract personal liability for taking out a bounce back loan.

Bounce Back loans and fraud

The Insolvency Service can seek disqualification against a director for a period of between 2 – 15 years and fraud is a serious allegation that usually attracts the upper band of disqualification (11+ years). There have been a number of incidences recently whereby the application of a bounce back loan has been directly linked to fraudulent activity.

• An example of this would be a dormant company, with no history of trading, that obtains a full £50,000.00 loan and withdraws the money from the company, which is then struck off the register.
• Another is where the stated turnover of the company at the time the bounce back loan was applied for was deliberately overstated.

The Insolvency Service is now trying to recover bounce back loan money (by way of compensation) in fraudulent circumstances on an accelerated basis. Directors banned over covid loans is increasing. Even innocent bounce back loan applications, which have a technical error such as an incorrect turnover estimation, are being investigated with the highest degree of detail and may be treated as fraud.

Therefore, strong legal advice is needed after the director becomes aware of such investigations in order to avoid being one of the directors banned over covid loans, a lengthy disqualification period and a compensation order.

Bounce Back loans and IVAs

An individual voluntary arrangement (‘IVA’) is a binding agreement between you and your creditors. These agreements are very flexible and can pay off varying levels of debts over varying timeframes.

Your bounce back loan will be relevant to your IVA if you:

• undertook your business in a sole trader capacity;
• took out a bounce back loan during the COVID-19 pandemic; and
• subsequently entered into an individual voluntary arrangement.

As you are a sole trader, there is no limited liability, and you are personally liable for this bounce back loan debt. Therefore, a bounce back loan will be treated like any other unsecured debt in the IVA.

The important element of a bounce back loan in an IVA is whether you believed your business was viable at the time of taking the loan and only borrowed what you were entitled to. The risk of taking out the loan illegitimately is that the bounce back loan application may be considered fraudulent. This can lead to proceedings later on and is a situation that will only be made worse if repayments of the bounce back loan are not agreed to and maintained by you.

Recent bounce back loan insolvency disqualification examples

We will continue to update details of recent disqualifications and directors banned over Covid loans – as a current guide to the attitude of the Insolvency Service investigations

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Whatever your director disqualification enquiry or issue – we have the team of experts to help you TODAY. Don’t settle for second best – call the no 1 team in the UK – and we can help.

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