At the height of the Covid-19 pandemic government Bounce Back Loans (“BBLs”) offered economic support to business owners negatively impacted by the pandemic, with reassurance the money could be paid back over six years at low interest rates and few strings attached.
BBLs were made available to all SMEs in the UK across every sector and industry. Companies were told the loan could be used for a variety of purposes such as investing in the business, helping cash flow or providing working capital. However, it was made very clear that BBLs were not intended for personal use.There has been much media coverage around Covid loan abuse and the inability of many companies to repay these loans. Statistics in this year’s Insolvency Service Annual Report published in July 2024 show that the service took action resulting in 831 directors being disqualified due to Covid loan abuse, which represented two-thirds of all director disqualifications during 2023-24.The most common pitfalls we see directors falling foul of in order of occurrence are:
- Not using funds in the ordinary course of business but for personal benefit.
- Declared inflated turnover
- In the absence of accounting records transferred funds to an unknown account.
- Transferred funds to a connected company.
- Applied for more than one BBL.
Directors whose Companies cannot repay the BBL and may have wrongly applied for or misused it should seek professional advice, equally it is important for directors to understand and consider whether they could face any personal liability. However, there are options available that can minimise the risk of disqualification and personal liability and our expert advisors can help worried directors explore these.
Early intervention is the key to minimising claims against directors personally and achieving successful outcomes for financially distressed companies and their shareholders.
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