Two recent cases, brought against directors of insolvent companies by the Secretary of State for Business, Energy & Industrial Strategy, provide an indication of how seriously the Government and the Courts are taking the misuse of funds provided to companies under the coronavirus bounce back loan scheme. The cases saw directors being disqualified from office for periods of 11 and 12 years respectively, where 15 years is the maximum period for which disqualification may be sought.
In the first case the director was disqualified following a fraudulent bounce back loan application. It was established that the director knew, or ought to have known, the company was not eligible for the loan. The company had not traded since April 2019 and had therefore been dormant for a year prior to the application being made for a loan of £50,000 in May 2020. To qualify for the loan the company was required to have been trading on 1 March 2020. Further, the director had failed to provide sufficient records to establish whether the funds were used for the intended purpose of providing economic benefit to the company.
In the second case, the director was disqualified for transferring £50,000 from the company’s bank account prior to its entry into liquidation. This sum had been obtained by the company by way of a bounce back loan just weeks before the company entered liquidation.
Breach of a disqualification order has serious consequences. Not only is it a criminal offence punishable by up two years’ imprisonment but the Court may also hold the director personally liable for any subsequent company’s debts whilst in breach of a disqualification order.
Claims by Liquidators or Administrators
In addition to disqualification applications brought on behalf of the Secretary of State by the Insolvency Service, directors of a company that enters liquidation or administration who have misused the bounce back loan scheme are also liable to claims brought by liquidators/administrators following their investigation of the company’s affairs pursuant to the provisions of the Companies Act 2006 and the Insolvency Act 1986.
The Future
It is clear that the Insolvency Service is already taking active steps to punish directors whom they believe have misused the bounce back loan scheme. They have also recently sought the compulsory winding up of several infringing companies. The Government has recently introduced legislation which will allow HMRC and the Insolvency Service to pursue directors who dissolved their companies, without first placing them into liquidation, leaving outstanding debts, including bounce back loans or tax. The new law will allow retrospective investigation and action to be taken against directors and can lead to disqualification and personal liability if they are found to have dissolved their company with first dealing with the outstanding debts.
This means that, for the first time, authorities will have the power to investigate company dissolutions and strike-offs retrospectively to make sure they were completed properly and punish directors of those that weren’t.
If you have been affected by any of the issues above, you should obtain specialist legal advice at the earliest opportunity. Our lawyers have expertise spanning every area of company and insolvency law. Contact Leanne Schneider- Rose l.schneider-rose@sydneymitchell.co.uk for specialist advice on 08081668827 / 01216982211
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