The Bounce Back Loan Scheme: one of the biggest “cock-ups” in recent government management
Bounce Back Loan Scheme: “One of the most colossal cock-ups in recent government management and tax payers are paying for this”
This was the verdict of Lord Theodore Agnew, former government efficiency minister at a recent hearing of the Business, Energy and Industrial Strategy Committee (BEIS).
Background
The Bounce Back Loan Scheme (BBLS) was set up at short notice in April 2020 with the aim of helping small and medium sized businesses which were adversely affected by Covid to borrow between £2,000 and 25% of their turnover, up to a maximum of £50,000. Applicants were able to self-declare they met the criteria, and personal guarantees were not required, as these loans were guaranteed by the Government.
The British Business Bank (“BBB”) oversaw the scheme on behalf of the Government. More than £46 billion was loaned by banks under BBLS with only minimal checks being carried out. Official estimates suggest that anything between £3.3 billion and £5 billion may have been fraudulently obtained. The BBB has identified more than 22,000 loans which appear to be duplicates, more than 1,000 which were given to companies which had already been dissolved, and more than 15,000 loans which were made to businesses that had been only incorporated after the pandemic began.
It is no surprise, therefore, that the conduct of directors of companies which received these loans have come under scrutiny, not least in relation to the way in which these loans have been applied, and there have been several cases reported in the last few weeks of Disqualification Orders made against directors who abused the scheme.
New powers to investigate
The Insolvency Service has been granted new powers to investigate and disqualify company directors who are found to have abused the company dissolution process. The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act (“the Act”) which came into force on 15 December 2021, extends the Insolvency Service’s powers to tackle unfit directors who dissolve companies to avoid repaying BBL’s and other debts. Under the Act, former directors of a dissolved company may be required to pay compensation to creditors who have suffered loss as a result of fraudulent behaviour.
The Liquidator of insolvent companies which received BBL’s will also be under a duty to investigate the conduct of its directors, and to report to the Secretary of State on the conduct of the directors leading to the company’s insolvency.
The directors of companies which obtained buy back loans, and are now facing the prospect of insolvency, may be understandably concerned regarding how their own conduct might be viewed in this climate.
