Company directors who have taken out a Bounce Back Loan (or other Covid-19 funding) for their company should urgently consider whether there is any risk of the Insolvency Service opening investigations into whether the application for that loan was proper and how the funds were used. The Insolvency Service has announced a voluntary repayment amnesty which closes in December 2025.

The Insolvency Service’s final push in pursuing Bounce Back Loan fraud

The Insolvency Service has secured funding for an intensive final campaign targeting directors with legal action over alleged Bounce Back Loan fraud. Such action will include director disqualification and compensation orders claims under the Company Directors Disqualification Act 1986 (CDDA 1986).

Repayment amnesty until December 2025 to reduce the risk of director disqualification

In the lead-up to that final push in pursuing what the Insolvency Service considers to be Bounce Back Loan fraud, a voluntary repayment scheme (repayment amnesty) has been announced, encouraging voluntary repayments until December 2025.

Whilst repayment cannot guarantee immunity from future action by the Insolvency Service, it is expected that it will significantly reduce the risk of any such action being taken in anything but the most serious cases.

More details regarding the COVID Repayment Scheme announcement can be found in our update: The COVID Repayment Scheme.

Risk to directors

The key risk directors face is disqualification from being a director of a company. Disqualification periods can range from 2-15 years. In the context of alleged Bounce Back Loan fraud, disqualification in the maximum bracket of 11-15 years is typically sought by the Insolvency Service.

Directors should urgently review and be proactive in considering options

Our experienced insolvency team has acted for directors in scenarios that many others may find themselves in where:

• directors acknowledge mistakes made in Bounce Back Loan applications or the use of funds
• directors were accused of wrongdoing but had valid explanations for their actions.

Directors have to carefully consider their options and should seek advice urgently if they, with hindsight, have any concerns. Even where they haven’t yet received a letter from the Insolvency Service, we strongly recommend that they review the circumstances around any Bounce Back Loan that has not yet been repaid to consider whether they may wish to benefit from the repayment amnesty, which is in place until December 2025.

Demonstrating the intent to “do the right thing”, documenting the reasons for any accidental potential misuse and cooperating with the Insolvency Service can go a long way to reducing the risks faced by company directors.

Understanding director disqualification

Pursuant to section 6 of the CDDA 1986, a director can be banned from being a company director for two to 15 years.

The period of director disqualification generally indicates the seriousness of the allegations against the director:

• 2-5 years (not particularly serious misconduct)
• 6-10 years (serious misconduct)
• 11-15 years (most serious misconduct).

In cases where Bounce Back Loan fraud is alleged, we have found that the Insolvency Service typically seeks disqualification in the most serious bracket, i.e. 11-15 years.

Whether or not that is proportionate to disqualifications sought for tax fraud is an issue that directors have questioned.

The impact of director disqualification on individuals

Directors should note that the effect of a director disqualification order includes the following:

• Prohibition from being a director of a limited company
• Prohibition from involvement in the management in a company
• Criminal liability for breaching a disqualification order
• Personal liability for company debts (where in breach of a disqualification order)
• Reputational damage as a result of the publication of disqualification orders and undertakings (on the Insolvency Service Register, Companies House and other Insolvency Service press releases).

Compensation orders – additional financial risk

Where a disqualification order was made (or an undertaking given) under the CDDA 1986, the Insolvency Service has two years to seek from the Courts a court order whereby the relevant director is ordered to repay the financial loss caused by the misconduct.

What the Insolvency Service commonly investigates as Bounce Back Loan misuse

Based on our experience, investigations typically focus on:

• Application issues:
  • allegations of misleading application
  • inflated turnover declarations (often due to directors having misunderstood rules regarding when and how to rely on estimated turnover)
  • questions over the company’s trading status
  • multiple applications for Bounce Back Loans, beyond any entitlement

• Funding misuse:
  • personal use of loan funds
  • funds are being used to pay for services provided by connected companies or individuals.

How Ashtons Legal can help

Our specialist insolvency team provides advice to directors defending:

• Bounce Back Loan fraud allegations
• Insolvency Service investigations
• Director disqualification proceedings.

We recommend seeking legal advice at the earliest opportunity and, given the December 2025 deadline in respect of the current repayment amnesty, proactively considering all circumstances surround outstanding Bounce Back Loans.

Contact our insolvency solicitors today

Please contact our dedicated insolvency and corporate recovery team by calling 0330 404 0767 or complete our online enquiry form.