Hundreds of company directors have been disqualified across the UK for claiming bounce back loans they were not entitled to. This has led to an increased number of enquiries from concerned directors who fear they may face similar proceedings.
If you have received a section 16 letter threatening director disqualification, please contact us now for immediate legal advice.
If you are looking for more information about director disqualification and bounce back loans, please read on. We have answered some frequently asked questions below, including:
- Will I be disqualified as a director over a bounce back loan?
- When will a director be disqualified in relation to a bounce back loan?
- Can I liquidate my company with a bounce back loan?
- Can a director be personally liable for a bounce back loan?
- What are the consequences of a director disqualification?
- Have directors been disqualified over the bounce back loan?
Will I be disqualified as a director over a Bounce Back loan?
You will not be disqualified as a director over a bounce back loan unless some form of misconduct has taken place.
The bounce back loan scheme was introduced by the government during the Covid-19 pandemic to help businesses through a difficult period of trading. Unfortunately, not all businesses were able to ‘bounce back’. This means some have ceased trading with loan repayments still outstanding.
When a company is liquidated, the Insolvency Service tends to investigate the actions of the directors over the past three years. If there is any evidence of misconduct, the Insolvency Service will seek to disqualify that individual as a director.
A BBC investigation found that as of 2 August 2022, 260 directors have been disqualified with their companies still owing a bounce back loan. Yet these disqualifications have not occurred because the bounce back loan is owing; rather, it is because the directors themselves have acted wrongfully in some way.
When will a director be disqualified in relation to a Bounce Back loan?
A director will be disqualified in relation to a bounce back loan if the director is guilty of misconduct.
The very fact that your company is insolvent with a bounce back loan still owing is not enough to warrant a director disqualification. A director disqualification will only happen if you defrauded the government. This typically means that you:
- Provided false information on the loan application
- Used the bounce back loan for personal benefit
- Dissolved the company to avoid repaying the loan
Providing false information on a loan application
Bounce back loans were only available to companies that were trading. The value of the loan also depended on the company’s annual turnover.
Director disqualification proceedings may be pursued where the director falsified information on the application to get a bounce back loan, or to borrow more money that they were entitled to. This includes where the director:
- Exaggerated turnover or losses
- Got a bounce back loan for companies which were no longer trading
- Got a bounce back loan for sham companies
- Failed to declare that a company was already in liquidation
Using a Bounce Back loan for personal benefit
The terms of the bounce back loan meant the money could only be spent on legitimate business expenditure. Director disqualification proceedings may be pursued where the director:
- Used the loan for personal benefit
- Used the loan to repay third parties
- Used the loan for anything other than legitimate business costs
Dissolving your company to avoid repaying the loan
A company should pay its debts before it is formally dissolved, including government-backed loans such as the bounce back loan. If there is not enough money to repay the money within 12 months, the company must go through liquidation.
Director disqualification proceedings may be pursued where:
- A director dissolves a company with a bounce back loan still outstanding; and
- The company has not been through the proper dissolution/liquidation procedure
Can I liquidate my company with a Bounce Back loan?
You can liquidate a company with a bounce back loan still outstanding, so long as you follow the correct process.
Lots of businesses have been unable to recover from the effects of the pandemic, or have simply come to their natural conclusion. However, there is some concern that the company cannot be dissolved with a bounce back loan still pending. This is not entirely true.
You are allowed to dissolve a company with outstanding debts. But you must sign a declaration of solvency in which you promise to pay the debts within 12 months. You must also give notice to your creditors. If the company cannot afford to repay its debt, then it is insolvent and must go through a Creditors Voluntary Liquidation instead.
If a director fails to dissolve a company in line with the proper procedures, and there is a bounce back loan still outstanding, then it will likely trigger an investigation.
In the past, directors of dissolved companies could not face disqualification proceedings. This changed under the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021. Now, HMRC and the Insolvency Service can take action against directors who dissolved a company improperly while leaving outstanding debts unpaid.
Can a director be personally liable for a Bounce Back loan?
A director will not be held personally liable for a bounce back loan unless he/she has failed to meet their statutory obligations as a director.
Bounce back loans are an unsecured form of debt and did not require personal guarantees. This means a director is not personally liable for the debt, should the company be unable to repay the loan. However, this position can change if the director acted wrongfully.
What are the consequences of a Director Disqualification?
Along with becoming personally liable for the bounce back loan, a director may also face other consequences in relation to bounce back loan fraud/wrongdoing.
Primarily, the Secretary of State will seek to disqualify the director. Director disqualification can last between two and 15 years. During this time, the individual cannot directly, or indirectly, become involved in the promotion, formation or management of a company, without permission of the court.
Found out more about the consequences of a director disqualification.
Have directors been disqualified over the Bounce Back loan?
Over 200 directors have been disqualified over bounce back loan fraud to date.
This includes the case of Stephen Burke, who claimed £200,000 through the bounce back loan scheme that his four companies were not entitled to. One company was dormant, and he exaggerated the turnover of the other three. He also spent some of the money repaying a personal loan to his former partner. Burke then sought to dissolve all four companies without repaying the debt. He was disqualified as a director for 11 years.
Rob Clarke, Chief Investigator at the Insolvency Service, said:
“Coronavirus support schemes were introduced to help British businesses through the most testing of times, providing them with the financial support to protect jobs and return to prosperity.
“Stephen Burke not only sought to defraud the Bounce Back Loan scheme for personal gain, but then sought to cover his tracks by dissolving the companies he’d used. This abhorrent conduct has rightly resulted in a lengthy ban, removing his ability to trade with the benefit of limited liability until 2033.”
Director Disqualification Bounce Back loan
Various UK authorities are investigating bounce back loan fraud, including HMRC and the Insolvency Service. Any evidence of director misconduct will lead to director disqualification proceedings.
If you claimed a bounce back loan as a company director, you might be concerned about what the future holds. If you did nothing wrong, then you need not worry. Even if you are now struggling to repay the loan, it does not mean that you will automatically be disqualified.
However, you do need to be careful that you take the rights steps. That is why if you want to dissolve a company with a bounce back loan still outstanding, you need to get expert legal advice. Our solicitors can help you through the process, ensuring you do not fall foul of the rules.
Alternatively, you might already be dealing with allegations of director misconduct in relation to a bounce back loan. If so, please contact us without delay. We offer expert legal support to directors facing disqualification. We can advise you on how to get the best possible outcome.