The ongoing challenges of bounce-back loans
In May 2020 the bounce-back loan “BBL” initiative was introduced by the UK Government which provided loans ranging between ￡2,000 and ￡50,000. Each one was limited to 25% of a company’s annual sales.
?The BBL scheme was introduced because the Government was keen to support business activity whilst the full impact of Covid-19 was being assessed.? Maintaining the country’s economic heartbeat was a crucial factor in the decision to provide these loans.?
Government statistics suggested about ￡46.6 billion (￡46,600,000,000) was lent and covered just over 1.5 million individual loans i.e. about ￡30,600 per loan.?
The scheme ceased at the end of March 2021 and, by the end of July 2022, it was reported that only about 10% had been repaid.? A National Audit Office report suggested that up to 60% of BBL monies might never be recovered due to fraud, organised crime and default.? It is also known that a number of BBLs are being repaid at a much slower rate than originally intended because of the financial challenges in recovering from Covid-19.?
It might be contended that the main reason so much of the BBL monies will not be recovered was the ease of obtaining the cash.? The application process only took a few minutes and the money was provided the following day i.e. without the usual detailed review/questioning that accompanies a standard bank loan.
?Given the ￡20 billion “black hole”? that has been spoken about so much recently and the October Budget was designed to plug, one wonders what provision for BBL loss the Government has included in their calculations.?
There are many companies who, despite receiving a BBL, were unable to continue and simply closed.? Unfortunately for them, any attempt to simply remove the entity from the register of companies is thwarted by the Government process, which objects to a standard striking off procedure until the BBL has been either reviewed or repaid.? Accordingly, a large number of non-trading, zombie companies exist which are not submitting annual accounts, shareholder updates etc.?
For those companies who are still trading, it is the responsibility of the bank who provided the BBL to monitor/collect the loan.?
For the companies who did not survive and entered a formal insolvency procedure e.g. liquidation, The Insolvency Service “TIS” now insist that the liquidator scrutinises every BBL application in terms of whether it was valid, supportable, and check how the funds were utilised.? For example, if a company could only borrow ￡30,000 legitimately by way of a BBL but lied about the level of turnover in order to obtain a higher sum, TIS will consider raising proceedings against the director for a fraudulent application. Further, if the liquidator’s enquiries show that the BBL monies were immediately withdrawn from the company by the director and not used for business purposes two issue arise :?
1.???? The liquidator will deem this to be a director’s loan transaction and seek recovery from the director, through court if necessary, and
?2.???? TIS may instigate legal proceedings against the director seeking either a period of disqualification or perhaps a custodial sentence.?
TIS issue a weekly update and, throughout both 2023 and 2024, there have been numerous reports of actions against directors for abusing the BBL scheme. For example, one person obtained a ￡50,000 BBL which was more than the company was entitled to and the director was disqualified until 2037. In another case, a husband and wife team who lied about their company’s financial position and used the BBL monies for personal use were banned for a combined total of twelve years, whilst another director obtained two ￡50,000 BBLs which he used to settle personal debts and was ordered to either repay ￡56,000 over a three month period or go to jail for eighteen months.??
Of course, if a director has acted in a responsible manner and used BBL monies to support a company in a legitimate way, despite the fact that it may not have survived, there is nothing to fear.? The focus is therefore upon ensuring a proper audit trail of what was claimed and how the monies were used.?
The views in this article are those of Michael J M Reid, licensed insolvency practitioner and partner of MHA (mha.co.uk) rather than those of the firm in general.???