Covid loan fraud: The insolvency risks for directors involved in fraudulent activity

Two companies, Ledbridge Consultants Limited and Montague Partners Ltd, were recently wound up by the High Court after fraudulently obtaining over ￡1 million in Covid support loans. An investigation by the Insolvency Service revealed that neither company had genuinely traded and had instead been used as vehicles to siphon taxpayer money. This case highlights the severe consequences for directors who misuse government schemes and the crucial role of insolvency professionals in investigating and rectifying fraudulent activities.

The fraudulent activities:

• Bounce Back Loan fraud: Both companies secured ￡50,000 in Bounce Back Loans (BBLs) – the maximum allowed under the government scheme. These loans were rapidly transferred to multiple individuals and companies, leaving the accounts depleted within weeks.
• Future Fund abuse: Montague Partners also fraudulently obtained ￡1.5 million from the Future Fund, designed to support companies during the pandemic. These funds were similarly dispersed to 35 individuals, with ten receiving more than ￡75,000.
• Suspicious financial reporting: Both companies filed questionable accounts showing drastic and unexplainable increases in net assets. Ledbridge Consultants claimed a net asset increase of ￡13.4 million, while Montague Partners reported ￡2.2 million – a stark contrast to the ￡1 in net assets reported the previous year.

Deceptive practices: The companies also exploited job applicants' identities to register them as directors, shareholders, or investors without their consent. This further complicated the investigation, as the Insolvency Service was unable to determine who was actually controlling the companies.

The role of the Insolvency Service: Due to the gravity of the allegations, the Insolvency Service took immediate action to stop these companies from trading. They worked to uncover the extent of the fraud and ensure both companies were wound up, with the Official Receiver now appointed as liquidator. Investigators highlighted the importance of protecting taxpayers’ money from being misused through fraudulent applications to government schemes.

AABRS perspective: At AABRS, we regularly work with directors and businesses facing the consequences of financial distress, including cases of loan misuse and fraud. This case underscores the need for directors to understand their fiduciary duties, as misuse of funds can lead to severe legal consequences, including personal liability, prosecution, and the potential recovery of assets by the liquidators.

How AABRS can assist:

• Investigating fraudulent activity: We assist in uncovering any misappropriation of company funds and work with insolvency practitioners to recover assets for creditors.
• Guidance: For directors who have a Company that may have been the victim of fraud and become insolvent as a result, we can assist with the liquidation and bring in a team of experts to help recover funds from the guilty party.
• Rescue and recovery: For companies facing financial difficulties, including those who may have misused Covid loans, we provide restructuring solutions to avoid insolvency and ensure the best possible outcome.

For accountants in practice, it’s crucial to be vigilant when advising clients who have accessed Covid support schemes, as the risks of improper use are significant. AABRS is here to provide support in these complex situations and help safeguard businesses from the severe repercussions of loan fraud.

Source: Court shuts down two connected companies which received more than ￡1 million in fraudulent Covid loans - GOV.UK (www.gov.uk)