Cracking down on wrongful use of the scheme, the government has launched a £25 million “fraud squad” to retrieve an estimated £10.6 billion lost to fraud.
The government introduced the Bounce Back Loan scheme at the beginning of the COVID-19 pandemic in order to offer small-to-medium enterprises a much-needed lifeline to see them through the restrictions that coronavirus brought with it. Though a very helpful gesture for smaller firms, the BBL scheme was nonetheless misused and abused by some directors, with government-backed COVID support programmes now having lost an estimated £10.6 billion to fraud. In order to crack down on wrongful use of such support schemes, Chancellor of the Exchequer, Rishi Sunak, has announced the formation of the Public Sector Fraud Authority (PSFA), a new, £25 million “fraud squad” comprised of expert economic crime investigators and data analysts.
The news that the government is taking drastic measures to reclaim the eye-watering losses to support scheme fraud has put banks under increased pressure to ensure that BBL repayments are made in a timely manner, with some now encouraging that companies who are struggling to repay their loans should enter into a formal insolvency procedure. In this article, we will run through some of the questions that directors will want answered in order to ensure the best outcome for their business if they are faced with outstanding BBL debt.
Can I liquidate a company that has an outstanding Bounce-Back Loan?
Although Bounce-Back Loans are completely guaranteed by the government, a BBL will be treated as an ‘unsecured debt’ when a business goes into liquidation, as the loan is not secured against the firm’s assets. Given that unsecured debts are seldom paid in full in the event of liquidation, the lender will pursue the government for full repayment. All unsecured debt is written off when a company is liquidated, and the responsibility to pay back the BBL falls to the business, not the director or other shareholders. This requires that the director has complied with their duties, however, and directors can still be held personally liable if they are found to have wrongfully used the support scheme.
Why might struggling businesses feel pressured towards insolvency?
As many banks are becoming antsy for businesses to repay their Bounce-Back Loans, it is possible that we could see an influx in forced liquidations as lenders scramble to claim their government guarantees. New terms for the Bounce-Back Loan scheme require that banks take “reasonable steps” in order to collect the borrower’s overdue repayment, before ultimately concluding that no further repayment is likely, at which point they can then make a claim under the government guarantee. A company going into liquidation will therefore significantly increase the lender’s odds of being able to successfully put in for their guarantee. As such, it’s important to remember that banks are acting in their own best interests when encouraging a company to enter into a formal insolvency procedure. Directors must, therefore, consider whether liquidation truly provides the best end result for their business and its stakeholders.
If you require expert advice on the options for your business in the face of Bounce-Back Loan repayments, contact Voscap at 020 7769 6831 or email help@voscap.co.uk to speak with one of our licensed insolvency practitioners.
