All things ‘BILS’ and Directors Disqualification

23 February, 2022

In the space of 15 months, from March 2020, the three main Covid loan schemes – Bounce Back Loan Scheme (BBLS), Coronavirus Business Interruption Loan Scheme (CBILS) and a scheme for larger loans, CLBILS – handed out nearly £80bn to businesses.

BBL was the biggest scheme, distributing £47bn to 1.6 million recipients, who were able to borrow up to £50,000 each. Meanwhile, fraud losses were estimated at £4.9bn at the end of March – although PwC, the accountancy firm hired by the government, has since reduced its estimate to £3.5bn.

Banks, intent on protecting their finances, usually apply stringent credit checks to help avoid fraud and ensure customers can repay their loans, but what was eventually agreed for bounce back, amid pressure from the Treasury to speed up loan distribution, was that checks would be dispensed with altogether. The British Business Bank was clear with the lenders that they were prohibited from carrying out credit checks. Borrowers, left to self-certify, had to confirm they met certain criteria, namely that they were based in the UK and affected by Covid; that they were in business as of 1 March 2020 and not insolvent as of 1 December 2019. It has since come to light that certain lenders paid bounce back loans to already dissolved companies, while loans were granted to companies incorporated after the pandemic hit. Insolvency Service records show some took loans to fund gambling or currency trading – money the government is unlikely to ever recover – while others spent it on things such as home improvements, car raffles or luxury personal items.

What we are now already seeing is the disqualification of directors in cases where misuse/abuse of BBLS has been found and the following are examples of the types of cases being reviewed closely by the Insolvency Service (not an exhaustive list);

  1. Overstating turnover in an application for a Bounce Back Loan and the loan not being used for the economic benefit of the company
  2. Company receiving a Bounce Back Loan in the sum of £50,000 which increased the bank balance to £93,086. The sum of £90,000 was subsequently transferred to an unknown accounts. In the absence of accounting records, it was not possible to determine if these funds were used for the benefit of the company.
  3. Breach of the conditions of the Bounce Back Loan Scheme by using a BBL of £50,000 contrary to the terms of the BBL Scheme by making a payment of £50,000 that was not for the economic benefit to the company

Although the disqualification period sought in these circumstances range from lower (2-5 years) to top bracket (11-15 years), recent cases reveal that many are actually appearing in the middle to top bracket averaging 6-9 years with 13 years being the highest so far. Most of these disqualifications have been dealt with by the Secretary of State accepting a Disqualification Undertaking which is the administrative equivalent of a disqualification order and can be entered into, voluntarily, without the need for court proceedings. Once accepted by the Secretary of State it has the same effect as a court order and can only be amended by the court.

These issues are explored in a longer article by the same author that is available on our website.