Many directors took out bounce-back loans for their companies during the pandemic. This was a stressful time for UK businesses, who didn’t know if their companies would survive. Unfortunately, the loans were open to many issues, such as fraud. In this blog, we’re answering the question, what is bounce-back loan fraud?
Bounce-back loans were provided during a time of uncertainty, and most companies were required to give their actual annual turnover from 2019 to determine their loan amount. However, newer companies were expected to provide an estimated turnover. These loans were self-certified, which left them open to fraud. All companies were required to be honest regarding their company’s turnover.
Can I close my company with a bounce-back loan?
In most cases, yes, you can close your company with a bounce-back loan. When you enter the liquidation procedure, your liquidator will investigate your bounce-back loan. The Insolvency Service may also look into how you spent your bounce-back loan funds.
When applying for bounce-back loans, it was made clear to directors that the money should only be used for the economic benefit of the company, such as paying for the trading premises. This means that bounce-back loan funds should not have been used to purchase personal items or transfer to a director’s personal account.
You can only use a formal insolvency procedure if you have an outstanding bounce-back loan. You must not attempt to use the company strike-off method, as your bounce-back loan lender will reject your request. All accredited lenders will be made aware if your company attempts to use the strike-off method without paying your outstanding balance.
How do I go about closing a limited company with a bounce-back loan?
If you have an outstanding bounce-back loan, you can only use the creditors’ voluntary liquidation (CVL) method. Providing that you have acted responsibly as a director, you should be able to close the company despite using the bounce-back loan scheme. Providing that no wrongdoing is found, the company and director should not be adversely affected by these actions.
Will bounce-back loans be written off?
Yes, in short, if you liquidate with a bounce-back loan, it gets written off, but if you have committed bounce-back loan fraud, it’s going to cause you some personal problems down the line. When applying for bounce-back loans, directors were not asked to provide a personal guarantee, as the loan scheme was backed by the government guarantee.
The BBL scheme being backed by the government means that if you are unable to pay the loan back, the government will step in and cover the costs for you. However, this is dependent on various factors. For example, you must disclose information regarding your business loan, you must not provide any false information, and the money must have only been used for business purposes, not personal purposes.
What happens if you can’t pay the bounce-back loan?
If you cannot pay your bounce-back loan, you should take insolvency advice as soon as you can so you understand your options early.
You might wonder, what happens if you don’t pay your bounce-back loan? The answer is that you’ll likely find yourself in compulsory liquidation eventually. This type of liquidation is not recommended as it can lead to further director scrutiny and a lack of control. Read our blog on the different types of company liquidation.
Company directors who are struggling to make loan repayments need to be honest. You will not be able to get away with not paying the loan funds back.
If you are genuinely struggling to make the monthly payments for your loan, you need to speak to your lender. The bank may be able to assign you a new repayment plan that could take the pressure off you. Some businesses have been offered the ability to repay the money over a longer period or only pay interest for a certain amount of time. All of these options are worth considering if your business is struggling in the UK.
What is bounce-back loan fraud?
There are various forms of bounce-back loan fraud, and you should not try to hide them. If your company enters a liquidation procedure, the fraud will be uncovered, and you will be held personally liable for the loan. Here are some forms of bounce-back loan fraudulent activity.
- Using the bounce-back loan scheme money for your own personal benefit (misusing BBL funds)
- Using the money to send to a family member or friend
- If the director applied for more money than they were entitled to through a BBL loan – this may be labelled as a false representation
- Applying for more than one loan from different lenders – known as a fraudulent application
- Sending the money to another person so they could access more money
- Sending a lump sum directly to your personal bank account – the money was intended for the economic benefit of the company.
Bounce-back loan fraud will not be taken lightly and will be uncovered, so you’re much better off being honest from the beginning. When a company closes, the Insolvency Service will look into your use of the loan scheme. If you are found to have committed fraud, you will face the consequences.
The Insolvency Service can work with the banks to recover fraudulent loans. If a company director is found guilty of fraud or misusing bounce-back loans, they will face serious consequences, such as fines, director disqualification and even prison sentences.
What to do next
Many businesses will face no issues when closing the company with a BBLs loan. This means genuine businesses should try their best not to worry in these circumstances. The best thing struggling businesses can do is seek insolvency advice as soon as possible. Seeking advice early will provide you with the most options.
Alternatively, if you are worried that you may have committed BBLs fraud, you should also seek advice as soon as possible. Being honest may give you more options for dealing with the issue.
As the company’s director, we’re here to advise you. Contact us for support with your bounce-back loan.
I'm Chris Worden, Managing Director at Director First. With over 7 years of experience, I help UK directors navigate the complex world of UK corporate insolvency. We offer free and independent advice to UK directors and advise them about what options may be available to them if their limited company starts to struggle.
I am passionate about helping other directors overcome their business challenges and get back on their feet, as I was once in the same position as them. I had a business that became insolvent, and the advice out there was confusing and overwhelming. I am here to provide honest and valuable advice to UK directors.
I am proud to say that we are one of the only 5-star corporate insolvency companies on Trustpilot with hundreds of 5-star reviews, and we publish videos weekly on our YouTube channel. Our channel is designed to educate UK directors about insolvency and debt advice.