19/11/24
In 2020, the Bounce Back Loan Scheme (BBLS) was launched by the UK government to help support businesses during the COVID-19 Pandemic. Up until 31 March 2021, the government allowed businesses to borrow between £2,000 and £50,000, at a low interest rate of 2.5%. Bounce Back loans, like any loan, must be repaid, but they are more flexible, with businesses being able to choose whether to pay them back over a period of 6 or 10 years. This flexibility gave businesses the opportunity to make investment choices which was intended to help with long-term financial growth
Bounce Back Loans were created to help inject working capital into small and medium-sized businesses to help them through the pandemic. The scheme was set up quickly, to provide quick support for businesses in unprecedented times and lacked any criteria as to what the BBL could be used for, just that the business could utilise the funds in any way which could provide an economic benefit to the business and could not be used for personal purposes.
Some legitimate examples of Bounce Back Loan use were, to improve working capital, modify business operations to allow for trade to continue, or even to refinance existing company debt. They could even be used to pay staff salaries, including director salaries and dividends.
What is the problem with the BBLS?
Due to the rush to ensure that vulnerable businesses were protected at the start of the pandemic, it was revealed in June 2021 that the basic fraud checks that would normally be in place for government loans, were not applied and as a result, the scheme fell open to fraud, defaults and error. Many businesses and/or individuals misused and took advantage of these loans and the taxpayer is now paying the price.
The Bounce Back Loan Scheme supported over 1.4 million businesses affected by the pandemic, handing out nearly £45 billion worth of finance. However, according to the National Audit Office, it is now believed that, of that £45 billion, around 11% went to people who applied fraudulently. This fraud is estimated to total to about £4.9 billion.
Common misuse and exploitation of the Bounce Back Loans were; knowingly providing falsified information during the application process; applying when not eligible, dissolving companies to avoid repaying the loan; and, using the loan for personal purchases. All these examples potentially amount to Bounce Back Loan Fraud and if a company and/or an individual is found to have misused a Bounce Back Loan and committed such a fraud, action may be taken against both the business and its director(s).
When and how may you be investigated?
Companies and individuals who gained Bounce Back Loans under false pretences or used the funds for other purposes than supporting the business are emerging. One of the main ways in which this is being identified is through the insolvency process when a business has failed and is facing closure.
Automatic Investigation
An investigation can begin automatically for Bounce Back Loan fraud, for example, if your company is facing liquidation, it will automatically be checked for issues such as negligence and fraud. Within this process, the companies’ affairs will be scrutinised, and the liquidator’s enquiries can go back as far as necessary if they suspect fraudulent activity. Any Bounce Back Loan taken out will be scrutinised as part of the investigation behind the business’ failure.
Government Investigation
The government is working with the National Investigation Services (NATIS) and the Insolvency Service (IS) to investigate instances of fraud and, where appropriate recover the money paid out in loans. and prosecute individuals for fraudulent taking out the loans.
Since September 2020, NATIS has opened 273 investigations into BBLS fraud, with a total value of £160 million.
Furthermore, Insolvency Service activity on BBLS fraud has so far, as of November 2024, resulted in 242 director disqualifications, 101 bankruptcy restrictions and 1 criminal prosecution.
Possible Penalties for Bounce Back Loan Fraud
If you are found to have committed Bounce Back Loan Fraud, there are a wide range of possible penalties. These include, fines, the disqualification of directors, compensation orders and most severe of all, criminal prosecution and possible imprisonment followed by proceedings under the Proceeds of Crime Act.
Recently, many companies and individuals have found themselves facing the consequences of fraudulently applying for and using Bounce Back Loans.
This September 2024, a businessman, Gerald Smith was found guilty of two counts of fraud and concealing criminal property. He was sentenced to 18 months imprisonment at Southwark Crown Court for fraudulently obtaining a COVID-19 Bounce Back Loan to a value of £50,000.
The businessman made a fraudulent application for the loan, claiming he needed the money to help his business. However, once successful, he used the £50,000 for personal use, personal expenses and to pay an existing £22,000 court costs order.
Another example, in May 2024, was a Manchester restaurant manager who was given a suspended sentence for fraudulently obtaining two covid loans worth £100,000 of which £12,000 was spent on jewellery.
The restaurant manager was sentenced to 10 months in prison, suspended for 12 months, at Manchester Crown Court. On top of this he was ordered to pay costs and compensation totalling £5,000 within 28 days.
How we can help?
We have a acted for a number of individuals being investigated for BBL fraud and continue to do so.
Get in touch so that we can advise you of the best course to take and assist with any legal proceedings.