The Insolvency Service has been given more powers to clamp down on UK company directors who have accessed the government’s emergency Covid loans but try to use loopholes to avoid repaying them.
The bill will give the Insolvency Service the power to investigate and sanction directors who deliberately wind up their companies to avoid repaying the state support. Directors found guilty of doing so could face directorship bans of up to 15 years and be prevented from setting up near-identical companies in the future.
Misuse of the Bounce Back Loan Scheme
Of all of the financial support provided to UK businesses during the coronavirus, it was the Bounce Back Loan Scheme that was thought to be the most misused. In total, around 1.5m small businesses took out Bounce Back Loans, which allowed them to access lump sums of up to £50,000 with no interest payable for a year. However, stories of company directors using the loans to buy supercars, repay personal liabilities and invest in other personal assets were commonplace.
Officials are concerned that rogue directors will now try to avoid repaying the loans by deliberately running their businesses into the ground before shutting them down via the company dissolution procedure. This new legislation has closed that door firmly. It allows the Insolvency Service to investigate company directors who try to dissolve their businesses as a method of avoiding their liabilities.
What is Company Dissolution?
Company dissolution, also known as strike off, is a process that can be used to close limited companies down. It is only supposed to be used by businesses that do not have any assets, have not been trading, and where creditors have been informed of the decision.
However, all too often, the dissolution process is abused by rogue directors, who use it as a way of quietly winding up businesses with debts without going through the necessary insolvency procedures. If successful, they can bring an end to their companies and escape the investigation they would face if they closed their insolvent businesses via liquidation. As a result, creditors of the business such as suppliers, employees, HMRC, and in this case, the taxpayer, are left out of pocket.
Closing That Door Firmly and Permanently
The measures are part of a new bill that was put before parliament earlier this month. The timing of the legislation is key. It has been introduced just as the banks start to charge interest and seek to claw back the government-backed loans.
Many banks have already started writing to borrowers to warn them of the need to start repaying their debts, and it’s thought that this process will kickstart attempts at fraud. By extending the Insolvency Service’s powers to investigate the directors of dissolved companies, investigators will be able to determine exactly what the loans have been used for. They’ll then be able to hold directors that are attempting to avoid their responsibilities to account.
Struggling to Repay Government-Backed Loans?
We’re here to help company directors through difficult times. If you have accessed a government-backed loan that you are struggling to repay, please get in touch with our team immediately via phone, email or live chat. We will provide an initial consultation at no cost to help you understand your options. Everything you say will be held in confidence and we are committed to helping you find the best way forward for you and your business.
