Bounce Back Loans Scheme (BBLS)

Fraud risk considerations

by Nick Simmonds

Since their launch in May, bounce back loans have been a lifeline for businesses adversely affected by Coronavirus (COVID-19) and many companies have taken advantage of the "free" money. However, in many cases the money has now been spent and the respective companies are still facing tough times ahead. Some will survive the journey and others may not.

Here we recap on the criteria set out for businesses and some key questions to identify where there may have been fraudulent activity.

In recent weeks there have been suggestion in the press that BBLS loans have been taken out fraudulently and/or that funds borrowed have not been used as they were intended to be.

So, what would happen if a company that has used the BBLS were to enter formal insolvency proceedings? It is easy to say that the funds weren't taken out fraudulently and that the monies have been used appropriately. but will the appointed insolvency practitioner form the same view? Every scenario is. of course. going to be
different. but it's worthwhile setting out some basic points to think about when assessing the position.

> Firstly, the BBLS was set up to help small and medium-sized businesses with their working capital requirements. with businesses being able to borrow between £2,000 and up to 25 % of their turnover and a maximum loan available of

> There would be nothing to pay for the first 12 months. no fees nor any interest payments  for the first 12 months. and then interest to be repaid at 2.5% per annum and for the loan to be repaid over a maximum period of 6 years.

> If the above wasn't attractive enough. the government guarantees 10 0 % of the loan and no security or personal guarantees are required to be given. Better still. the borrower is required to self-declare they meet the eligibility criteria for the scheme.

What was the criteria?

The criteria in full can be found here and is clear. concise and sensible . It is. however. the final point of eligibility that is attracting attention:

'They will use the loan only to provide economic benefit to the business. and not for personal purposes. They have understood the costs associated with repayment of the loan and that they are able and intend to complete timely repayments in future."

Key questions to identify fraud

Whilst the criteria highlighted above is, prima facie. simple and clear, the reality is far from it. and there appear to be different interpretations. We have captured some key questions below which, when considered, might highlight why there are suggestions that fraud may have occurred and/or the funds have been utilised improperly:

  • Have funds been used to pay the directors wages, subject to a PAYE scheme?  
  • Have funds been used to pay director/shareholders by way of dividend payments?
  • Have funds been used to repay loans made to the company by directors?
  • Have funds been used to discharge other liabilities where directors had given personal guarantees?


Key takeaway

The "take away" from this is that if it turns out to be the case that the insolvency professional forms the view that either the monies have been used incorrectly or fraudulently, then it might be appropriate for the subsequently appointed insolvency professional to bring a misfeasance and/or preference action to recover monies.