Over 800 directors have been disqualified for abusing Covid loan scheme

More than 800 directors have been disqualified for abusing Covid support schemes over the 2023-24 financial year following investigations by the Insolvency Service.

A total of 831 directors were banned for Covid financial support scheme misconduct during 2023-24, with an average disqualification length of more than nine-and-a-half years. However, this is a significant jump on the 459 directors who were disqualified for fraud over these loans during 2022-23.

The Covid Bounce Back Loan Scheme was introduced at the start of the pandemic in 2020. It helped small and medium-sized businesses borrow between £2,000 and £50,000 at a low interest rate, guaranteed by the government.

Businesses were entitled to a single loan of up to 25 per cent of their turnover under the scheme. While individuals could only use the loans for the economic benefit of the business and not for personal purposes.

However, the UK Government has already had to foot a £7.4bn bill to settle bad loans with banks claiming a further £1.13bn, amid an “uncomfortable” level of fraud.

Vincent Billings, partner and head of the corporate and commercial team at SA Law explained that the “high levels of fraud arising from the bounce back loan scheme is not surprising due to the universal availability of the bounce back loans including from non-high street lenders”.

“The self-certification and basic eligibility checks allow for fraudulent claims to be made and clearly the lenders and government did not have the appropriate resources to check all the applications to ensure that fraud was not taking place,” he added

On the news on the disqualification, Judith Seddon, partner at law firm Ashurst, stated that “disqualification of directors is increasingly used by enforcement authorities of all types as a deterrent – and it is effective in preventing misconduct from reoccurring”.

She noted that this move also sends a strong message that the consequences of misconduct can be long-lasting and affect a director’s future employment prospects.

However, “it is an effective measure only if it is combined with robust decision-making about prosecuting company directors, where there is evidence of criminal activity and prosecution is in public interest,” she added.

The Insolvency Services stated that enforcement action taken against those that have abused the support schemes has ranged from companies being wound up in court to criminal convictions, compensation orders and director disqualifications.

The government agency stated that it has “successfully” applied to have 1,430 directors banned for abusing Covid support schemes since it started investigating potential financial wrongdoing in this area in 2021.

Commenting on the disqualification data, Dean Beale, chief executive at the Insolvency Service, said: “Tackling Bounce Back Loan misconduct is a key priority for the Insolvency Service and we are determined to use all our available powers to remove rogue company directors from the corporate arena.”

“It is important the Insolvency Service is taking such robust action to clamp down on directors who abused Covid support schemes and took from the public purse during the worst global pandemic for 100 years.”

“We have teams dedicated solely to investigating Bounce Back Loan misconduct that are committed to taking action against those who provided misleading information to receive money they were not entitled to,” he added.

While the agency is dealing with those that have defrauded the scheme, back in March, the Government was reportedly expected to extend a Covid recovery loan programme by two years.