Bounce Back Loan Fraud | Director’s Guide
Normally, when you close down a business with a Bounce Back Loan, the government pays off any remaining debt. However, this doesn’t apply to cases where there has been Bounce Back Loan fraud.
Bounce Back Loan fraud occurs when the money is gained under false pretences or spent on something other than the economic benefit of the company.
Directors responsible for Bounce Back Loan fraud face some severe consequences.
If you’re worried that you may have misused your Bounce Back Loan, it’s important to learn about the rules so that you can properly understand your situation.
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What Is Bounce Back Loan Fraud?
Introduced at the height of the COVID-19 pandemic in 2021, Bounce Back Loans were intended to give legitimate, struggling businesses the cash they needed to stay on their feet.
Company directors were free to spend the money as they saw fit – so long as they did so to benefit the company economically.
However, in many cases, the funds have been misappropriated or misused.
Examples of Bounce Back Loan fraud include:
- Using BBL funds for personal purchases
- Spending BBL funds with no intent to benefit the business
- Transferring the loan into a personal account without declaring it as a salary or a dividend
- Over inflating your turnover to secure a loan
- Getting a BBL for a company created after March 1st 2020
What Are the Consequences of Bounce Back Loan Fraud?
Committing Bounce Back Loan fraud can result in a range of nasty penalties:
- Held personally liable for the outstanding BBL balance
- Disqualification from directorship for up to 15 years
- Large penalty fines
- Imprisonment for up to 10 years
What penalties you’ll receive depends on the offence you’ve committed.
If you spent the money on yourself instead of the business, you risk facing a civil charge of misfeasance. This charge will likely result in you being made personally liable for company debt and getting disqualified from acting as a director again in the near future.
You risk facing criminal fraud charges if you lied to get a Bounce Back Loan (by overinflating turnover, creating a fake company, etc). This means penalties will be more severe: you can be made personally responsible for more debt, get disqualified for longer, and even be imprisoned.
I’m Worried I May Have Committed Bounce Back Loan Fraud
If you think you’ve committed Bounce Back Loan fraud, the best thing to do is to seek the guidance of an insolvency practitioner and a solicitor. This will let you determine your position and plan the best route forward.
In the meantime, you should try and ensure you make all the necessary repayments on your Bounce Back Loan whenever they’re due.
Only when a business has to undergo compulsory liquidation will investigations begin into the director’s conduct and usage of company funds.
If creditors force the business into closure, the liquidator must investigate how the director used the company’s money. They can scrutinise the company’s entire history if they believe there is evidence of fraud.
Options for Companies Struggling with a Bounce Back Loan
Pay As You Grow Scheme
The government introduced the Pay As You Grow scheme to help businesses struggling with Bounce Back Loan repayments.
It’s a powerful scheme that offers a few different lifelines to struggling directors:
- Pause repayments entirely for 6 months (1 time only)
- Switch to interest-free payments for 6 months (up to 3 times)
- Extend the repayment period from 6 years to 10 years
Pay As You Grow should be the first choice for any business struggling to repay a Bounce Back Loan. The scheme lets you reduce your overheads and alleviates the pressure on your business, making repayment much more manageable.
Company Voluntary Arrangement (CVA)
A Company Voluntary Arrangement is a formal insolvency solution that allows businesses to deal with their debts while avoiding liquidation.
It’s a repayment plan brokered between you and your creditors, offering a range of benefits:
- Stretches out repayments over 3-5 years
- Freezes interest on debt
- Protects business from debt-recovery action
- Remaining debts may be written off at the end of the arrangement
Entering into a CVA gives your company the chance to keep trading and to pay off its debts. This means you’ll be afforded the time you need to repay any worrisome Bounce Back Loans.
You’ll need the backing of 75% of your creditors – by value – to enter into a CVA. Our team will help draft a proposal that is affordable for you and attractive to your creditors.
Creditors’ Voluntary Arrangement (CVL)
If you’ve already exhausted the Pay As You Grow scheme and can’t get the support you need to enter a CVA, it’s time to start thinking about liquidation.
A Creditors’ Voluntary Liquidation is the UK’s most common form of company closure. It allows directors to exit the business safely by helping them uphold their legal duties to creditors, protecting them from legal and financial penalties.
The process requires a liquidator to investigate directors’ conduct and the use of company funds. This means it could result in you being charged with fraud if your Bounce Back Loan was actually misused or misappropriated.
However, a CVL is still your best bet when faced with no other recourse. Opting to close your business voluntarily demonstrates some effort on your part to protect your creditors, which will go in your favour.
Get Expert Help Today
If you’re worried that you’ve committed Bounce Back Loan fraud, you must seek proper guidance immediately.
Our insolvency practitioners can assess your situation and let you know the truth of your position. Directors struggling financially often catastrophise and assume the worst – this can lead many to wrongly believe they’ve committed fraud. However, this usually isn’t the case.
You may simply need the assistance of an insolvency solution to close your company, uphold your directorial duties, and protect your personal legal and financial interests.
Get in touch today to book a free consultation.
