Directors routinely make decisions about how company borrowing should be used. In most cases, those decisions form part of the ordinary management of the business. The position can become very different where borrowing is obtained dishonestly, company funds are diverted for personal benefit or records do not properly explain what happened to the money.
A recent Insolvency Service prosecution involving nine Bounce Back Loan applications provides a clear example.
A London hotelier pleaded guilty to nine counts of fraud and one count of money laundering after £450,000 was obtained through Bounce Back Loan applications involving five companies. The Insolvency Service reported that turnover figures had been overstated, multiple loans were obtained for some businesses and funds were transferred between companies and into personal accounts.
The case involved deliberate criminal conduct. It should not be taken to mean that a director whose company is unable to repay borrowing has necessarily done anything wrong.
For directors in England and Wales, the wider lesson is that where company borrowing later comes under scrutiny, investigators may examine not only whether the money was repaid, but how it was obtained, what it was used for and what records exist to explain those decisions.
Our Directors’ Duties Guide explains the wider responsibilities directors should consider when making decisions about company money and assets.
What happened in the £450,000 Bounce Back Loan fraud case?
According to the Insolvency Service, nine Bounce Back Loan applications were submitted across five companies during May and June 2020.
- Each application sought the maximum £50,000 available under the scheme, resulting in £450,000 of borrowing.
- The Insolvency Service reported that turnover was overstated in applications and that multiple loans were obtained for some of the same businesses.
- Money was subsequently transferred between companies and into personal accounts. Some of the funds were also used to purchase cryptoassets.
- The individual concerned pleaded guilty in July 2026 to nine counts of fraud and one count of money laundering.
- At Southwark Crown Court on 3 September 2026, he received a three-year prison sentence suspended for three years, together with 150 hours of unpaid work and 10 rehabilitation activity days.
The Insolvency Service reported that the full £450,000 was eventually repaid, but only after its investigation had begun.
This was therefore not a case of a director simply making a poor commercial decision or a business later becoming unable to repay its borrowing. Criminal offences were admitted.
That distinction should be maintained when considering other Bounce Back Loan cases.
When can Bounce Back Loan misuse amount to director misconduct?
A director is not guilty of misconduct simply because a company borrowed money and subsequently failed.
The Bounce Back Loan Scheme was designed to provide rapid financial support to businesses affected by the Covid-19 pandemic. Borrowers remained responsible for repaying the loans, despite the government guarantee provided to lenders.
Problems can arise where the circumstances go beyond ordinary business failure.
The British Business Bank’s Bounce Back Loan guidance explains that loans were generally limited to 25% of annual turnover, subject to the £50,000 maximum, and were intended to provide an economic benefit to the business.
Where investigators later examine a loan, questions may include whether the turnover stated in the application was accurate, whether the business was entitled to the facility, whether more than one facility was obtained improperly and how the funds were subsequently used.
There is an important difference between a director who made an application honestly but whose business later failed and one who deliberately supplied false information to obtain funds.
Likewise, the fact that company borrowing was transferred to another account does not necessarily establish wrongdoing. The commercial purpose and surrounding records need to be understood.
The issue becomes more serious where the evidence shows that money was dishonestly obtained, diverted for personal benefit or used in a way that cannot be reconciled with the purpose for which the borrowing was provided.
FWJ’s guidance on director disqualification arising from Bounce Back Loan misuse explains how Covid loan conduct can also become relevant to a later Insolvency Service investigation.
Can using company borrowing personally breach a director’s duties?
Company money belongs to the company rather than to its directors personally.
Directors therefore need to consider the legal basis on which money is being withdrawn, transferred or used for their benefit.
The Companies Act 2006 imposes a number of general duties on directors. These include duties to act within their powers, promote the success of the company and exercise reasonable care, skill and diligence.
How those duties apply will depend on the particular circumstances.
It would be too broad to say that every personal payment from a company account automatically constitutes a breach of duty. Directors may legitimately receive salary, dividends, expense reimbursements, repayment of money owed to them or properly documented loans.
The question is whether there was a proper legal and commercial basis for the payment.
Where borrowed money has been transferred to a director personally, investigators may therefore want to establish why the payment was made, how it was recorded and whether it was authorised.
The same applies to transfers between connected companies.
Connected businesses frequently transact with one another for legitimate reasons. However, substantial transfers made shortly before insolvency may later be examined to understand whether the company received appropriate value and whether the transaction was in its interests.
Good contemporaneous records can be particularly important.
Board decisions, loan documents, invoices, accounting entries and correspondence may help demonstrate why money was used in a particular way. Trying to reconstruct the justification for a payment several years later can be considerably more difficult.
Our guidance on claims against directors following insolvency explains some of the circumstances in which historic transactions can later become the subject of recovery claims.
What happens if the company later becomes insolvent?
When a company enters administration or liquidation, its financial affairs may be reviewed by the appointed insolvency practitioner.
That review can include the company’s borrowing, bank transactions, accounting records and dealings with directors or connected parties.
The fact that an insolvency practitioner asks about a transaction does not mean wrongdoing has already been established. Their role may require them to understand what happened to company assets and whether there are potential claims capable of producing a return for creditors.
Where Bounce Back Loan borrowing is involved, the office-holder may therefore examine the original application and what happened to the funds after they were received.
If concerns are identified, there can potentially be several separate consequences depending on the evidence.
An office-holder may consider whether money can be recovered through civil proceedings. Conduct may also be reported to the Insolvency Service and become relevant to a director disqualification investigation. In sufficiently serious circumstances, evidence of suspected criminal conduct may also be referred to the appropriate authorities.
These are separate processes and should not be treated as inevitable consequences of an unpaid company loan.
For directors, the important point is that liquidation does not necessarily bring questions about historic borrowing to an end.
Decisions made when a company was trading may be examined later with the benefit of bank records, accounting information and correspondence.
Our Defending Liquidator Claims Guide explains how directors can approach claims arising from transactions which are reviewed after insolvency.
Where the concern develops into director disqualification proceedings, our wider director disqualification guidance explains the investigation process and the options available to directors.
What should directors do if company borrowing is being investigated?
The starting point is to establish exactly what is being alleged.
An enquiry about an unpaid loan is different from an allegation that the borrowing was fraudulently obtained. A question about how funds were used is also different from an established finding that they were misappropriated.
Directors should identify and preserve the documents relating to the borrowing.
This can include
- the original application,
- turnover information,
- bank statements,
- board records,
- accounting entries: and
- documents showing how the money was ultimately used.
Where funds were transferred to another company or to a director personally, the legal and commercial basis for that transfer should be understood.
Directors should also be careful about assuming that repayment resolves every issue.
In the September 2026 case, the £450,000 was ultimately repaid in full, but criminal proceedings nevertheless continued because the concern related to how the loans had originally been obtained and used.
Equally, inability to repay does not by itself establish dishonesty.
A business may borrow money legitimately and later fail for reasons outside the directors’ control. The existence of debt, including a Bounce Back Loan, should therefore be distinguished from evidence of deliberate misconduct.
Where the Insolvency Service, a liquidator or another authority is asking detailed questions, early advice can help a director understand the nature of the investigation and provide an accurate response supported by the available records.
The wider lesson from the recent prosecution is not that directors should fear ordinary company borrowing. It is that company finance should be obtained honestly, used for legitimate company purposes and recorded properly.
Those steps can become particularly important if the company later encounters financial difficulties and decisions made several years earlier are examined with the benefit of hindsight.
