HMRC Bounce Back Loan Investigation

Introduced by the government in April 2020, the Bounce Back Loan Scheme (BBLS) provided rapid access to finance for small businesses affected by the coronavirus pandemic. Through the scheme, SMEs could borrow between ￡2,000 and 25% of their turnover, up to a maximum of ￡50,000.

While businesses took advantage of the BBLS, it wasn’t without controversy. In June 2021, it was revealed that basic fraud checks were disregarded in the rush to ensure vulnerable businesses were protected at the start of the pandemic. As a result, the scheme was open to fraud, defaults, and error. Nearly half of the loans taken out won’t be repaid, and because they are government-backed, the taxpayer is left picking up the tab.

HMRC is now investigating which businesses deliberately abused the BBLS. Cracking down on those guilty, the repercussions for directors who acted fraudulently are severe. Bankruptcy restrictions and director disqualification undertakings have already been issued against some UK businesses.

Do you require Bounce Back Loan legal advice?

Bounce back loan investigations are on the rise. If you have received a letter informing you that an investigation is underway, contact our director disqualification lawyers today for a free initial consultation to discuss how we can help to protect your position.

We’ve helped hundreds of directors, just like you, avoid disqualification proceedings brought against them by the Secretary of State. If you’re in a position of uncertainty and require specialist legal advice, contact us today on 020 4586 4576.

• Proven experience – we’ve successfully persuaded the Insolvency Service to withdraw proceedings against our clients.
• Fast service – we seek the earliest possible resolution to reduce the stress and disruption.
• Best results – our expertise helps to ensure our clients get the best results possible, every single time.
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Bounce Back Loan Fraud - Key Stats

For many businesses, the BBLS offered an essential lifeline. According to the British Business Bank, initial analysis shows that up to 500,000 businesses could have permanently ceased trading in 2020 alone if the scheme had not been in place.

Today, the government is working with the National Investigation Service (NATIS) and the Insolvency Service (IS) to investigate instances of fraud and, where appropriate, recover fraudulent loans and penalise guilty parties.

Here are some key stats:

• During its tenure, almost 1.56 million businesses were approved for finance.
• A cumulative value of around ￡47.4 billion was provided via the BBLS.
• Some ￡17 billion won’t be repaid due to fraud and defaults.
• NATIS has opened 273 investigations into BBLS fraud with a total value of ￡160 million (Sept 2022).
• 78 suspects have been dealt with, and 49 arrests have been made (Sept 2022).
• The Insolvency Service had issued 242 director disqualifications, 101 bankruptcy restrictions and one criminal prosecution for BBLS fraud (Sept 2022).

Why was the Bounce Back Loan Scheme introduced?

In Spring 2020, the potential scale of the Covid-19 pandemic became clear. Strict public health measures such as lockdowns and restrictions significantly impacted businesses across the UK. With no end in sight, many were at risk of closure.

To help businesses during unprecedented circumstances, the government introduced several loans (the Covid-19 Loan Guarantee Schemes):

• Coronavirus Large Business Interruption Loan Scheme (CLBILS). For mid-sized and larger UK businesses with a group turnover of more than ￡45m.
• Coronavirus Business Interruption Loan Scheme (CBILS). For smaller businesses with a turnover of less than ￡45m looking for up to ￡5m in finance.
• Bounce Back Loan Scheme (BBLS). For SMEs, micro-businesses and other businesses requiring smaller loans of between ￡2,000 and ￡50,000.

The BBL scheme came to a close at the end of March 2021.

What was the eligibility criteria for Bounce Back Loans?

Available through a range of accredited lenders and partners, including high-street banks, to be eligible for the Bounce Back Loan Scheme, a business had to confirm:

• It was engaged in trading or commercial activity in the UK at the date of application.
• It was a company or limited liability partnership incorporated or established in the UK, or tax resident in the UK.
• It derived more than 50% of its income from its trading activity.
• It had been adversely affected by the coronavirus (COVID-19) pandemic.
• That the loan would be used for the economic benefit of the business and not for personal use
• Whether or not on 31 December 2019 it was a ‘business in difficulty’ and does not breach state aid restrictions. If it was a ‘business in difficulty’ then, in addition, the facility will not be used for export-related activities.
• It was not in bankruptcy, liquidation, or similar at the time of submitting the application.
• It was not a bank, building society, insurance company, public sector organisation, state-funded primary or secondary school, or an individual other than a sole trader or a partner acting on behalf of a partnership.

A business applying to the BBLS would also be subject to the standard regulatory checks (e.g. Anti-Money Laundering (AML) and Know Your Customer (KYC)). However, in response to concerns that the funding was taking too long to reach struggling businesses, the government allowed companies to self-certify their eligibility, viability, and creditworthiness – thus increasing the fraud risk associated with the scheme.

What constitutes Bounce Back Loan Fraud?

There are different types of BBLS misuse. In many cases, fraud occurred where the money supplied was used for personal use rather than to support the business. For example, where:

• Funds were used to purchase personal assets.
• A lump sum was transferred to a personal bank account.
• Some or all of the money was given to a friend, family member, or another third party.
• The money funded a substantial increase in directors’ salaries or dividends.

BBLS fraud also occurred when a director:

• Exaggerated turnover to obtain funds.
• Did not disclose the company was in financial difficulty when applying for the loan.
• Dissolved the business in an attempt to avoid repaying the loan.

Other examples of BBL fraud are where criminals:

• Made multiple or fake applications for loans.
• Created a new company or acquired a shelf company to make a fraudulent application.

Consequences to directors who abused the BBL Scheme

Using the money fraudulently or knowingly providing false information to secure a BBLS loan could result in several fraud offences. These include false accounting, conspiracy to defraud, abuse of position, failing to disclose information, false representation, and money laundering.

If found guilty, the possible consequences include fines, imprisonment, compensation and confiscation orders, director’s disqualification, and Serious Crime Prevention Orders (SCPO).

The first Bounce Back Loan fraud prosecution

In the first criminal prosecution case of BBLS fraud, a company director was disqualified for seven years. In this case, the director applied for a ￡20,000 loan but failed to disclose that the company was undergoing dissolution. When the loan was due to be repaid, the company had been dissolved. The director gave their family around ￡14,000 in cash and used the remaining to purchase a car and insurance.

Pleading guilty to charges of fraudulently claiming Covid-19 financial support, the director admitted that they had no intention of using the loan for business purposes.

The Insolvency Service Response In June 2022, two directors received 11-year bans after applying for ￡100,000 worth of Bounce Back Loans to which the company was not entitled. In this case, the directors did not declare the company was in a company voluntary arrangement. In August 2022, five individuals were separately made subject to bankruptcy restrictions totalling 48 years.

In each of these cases, bounce back loans were either:

• Wrongfully obtained through overstating turnover.
• Acquired by a company that had already ceased trading before the pandemic.
• Misused for personal use.

The Insolvency Service continues to identify and tackle abuse of the BBL scheme.

Furthermore, due to recent changes to the law, directors of companies with outstanding debts (including BBLs), which were dissolved without first being placed into liquidation, can also expect to be investigated.

And due to The Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Act, retrospective investigation and action can be taken against directors suspected of misusing bounce back loan funds.

What if I’ve applied for more than one BBL?

Under the BBLS and in your BBL application, you will have been required to confirm that you have not received, nor are you in the process of applying for, more than one BBL per “group”. Whilst the word “group” is not expressly defined in the BBLS, relying upon the guidance provided at the time from the British Business Bank, “A customer may apply for one loan for each separate business, unless the businesses are a group as defined by having a holding company”. For example, an individual who owns two separate companies which each own a business, this arrangement will not be considered a “group” and so, each separate company would have been considered eligible under the BBLS to apply for a BBL.

Conversely, an individual who owns a single company which owns two separate businesses (subsidiary businesses of a single parent company), the separate businesses are a “group” and therefore were not eligible under the BBLS to apply for two separate BBL’s.

Have you been affected by the HMRC Bounce Back Loan investigation?

Whether you are the director of a going concern, are in financial difficulty, or have dissolved your company since taking out a Bounce Back Loan, being the subject of an investigation can be stressful and disturbing.

At Summit Law, we are experts in defending director disqualification claims – including in cases of suspected BBL fraud. In many cases, we have successfully persuaded the Insolvency Service to withdraw proceedings. Bounce Back Loan fraud charges could result in serious personal consequences. So, even if you have only received an initial letter or phone call from your bank or the Insolvency Service, you must contact us immediately.

For your free initial bounce back loan fraud investigation consultation, please call our experienced lawyers today on 020 7467 3980.