19 April 2024

Covid loans and company dissolution: It's risky business

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Jennifer Stack Insolvency Manager

It comes as no surprise to insolvency professionals around the country to hear that more than 1,400 company directors have been disqualified for Covid loan misuse in the last three years, with 831 bans in the last 12 months.

The Bounce Back Loan scheme: A lifeline for businesses

The government’s Bounce Back Loan (BBL) scheme aimed to assist businesses with access to finance on favourable terms during the Coronavirus pandemic. In the 12 months from May 2020 nearly 1.6 million companies were approved for a BBL, with the first repayments falling due from May 2021.

It’s worth noting that Companies House statistics show new company incorporations increased by a whopping 22% in 2020, and that company dissolutions set an all-time record in 2021 at 33%.

Is this purely a coincidence… or could it be that this was a deliberate act by hundreds of thousands of directors to avoid repayment? Moreover, does striking off a company help the company or directors to avoid any liability?

The potential of company restoration

The dissolution or strike off of a company is not always the end of the line, and the courts are able to restore companies to the register in certain circumstances – including to enable the liquidation/administration of the company.

Why does this matter?

An administrator or liquidator investigates the company’s affairs and submits a report to the Insolvency Service on the conduct of any directors. A key element of this conduct report is specific to Covid support loans and grants, including BBLs.

Recovery and accountability

The liquidator or administrator will generally obtain a copy of the company’s BBL application form and company bank statements, and then report on whether the company was entitled to the BBL and whether it was used for business purposes.

In the event of BBL misuse, the Insolvency Service may consider a disqualification process which could result in the director being placed under restrictions for a period of up to 15 years. In addition to this, the office holder has the ability to pursue directors to recover the loss caused to the company for the benefit of creditors.

Seeking expert advice

If you are a creditor or director seeking advice in relation to any matters above, please contact our team of experts who will be happy to assist you.

Jennifer Stack, Wilkin Chapman LLP
Need help?

Contact Jennifer to discuss this further.

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