Director Barred For Liquidating Business To Dodge Bounce Back Loan Payments

On Australia Day 2023, the 26th of January the Insolvency Service handed down its order striking off a person appointed to the office of director for one decade in connection with allegations of financial irregularities regarding a Bounce Back Loan in an amount of just shy of forty thousand pounds.

What Happened In The Case?

By way of background, the director at the center of proceedings submitted a formal request for bounceback credit facility in around mid-March 2021. As what happens in the real commercial world the business appears to have fallen on tough economic times and successfully applied for credit in the amount of just shy of forty thousand pounds in an effort to shore up its financial foundation. All appeared to have been progressing well, the request was granted and the monies were seemingly paid to the business to keep it afloat. When the monies from the bounceback credit were paid to the business bank account facility, the documentary evidence appeared to suggest that just shy of fifty percent of these monies were sent by way of money transfer to a banking facility in the European Union state of Lithuania.   

Be Sure Your Sins Will Find You Out…

Matters seemingly progressed without further issues. However, matters came to a head in approximately early July 2022 when the business appears to have fallen on further difficulties in terms of economic times and this time matters were so severe that those operating the business perceptively felt that they had no other feasible option open to them but to apply for insolvent liquidation. However, when the Insolvency Service launched a probe, the regulator discovered that when the business initially applied for the bounceback credit facility in mid-March 2021 it uncovered compelling evidence which appeared to suggest that the company had represented that it met the criteria for the credit application. However, the evidence appeared to suggest that this was not the case, the business did not qualify to receive the monies and such a loan application should not have been authorized. This was because the turnover did not exceed the threshold turnover amount of twenty thousand pounds. In addition, the Insolvency Service probed whether the monies obtained by the respective business had been used to stabilize the company, balance it, and put it in a position to continue operating. The Insolvency Service could find next to nothing by way of evidence to suggest that the bounce-back credit paid into the banking facility owned and operated by the organization had been utilized for the financial support of the company.               

What Did The Insolvency Service Say?

When the Insolvency Service reviewed the evidence of the circumstances it appears to have wanted to make an example of the director and send out a deterrent message that such behavior in applying for bounce-back credit facilities when such businesses are not permitted due to failing to meet the required thresholds such as levels of turnover. In this regard, it barred the director from operating in office for a decade.  

Lessons Learned? 

Those advising clients in this area need to carefully consider the circumstances surrounding this case and advise their clients to:

• operate businesses in compliance with their legal obligations under the Companies Act and Insolvency legislation

• maintain its compliance with these legal requirements by acting in the best interests of the organization 

• provide correct information on a loan application document and

• avoid putting the business into insolvent liquidation to dodge loan payments, 

If such directors follow this strategy it will mitigate the risk of falling foul of their legal obligations when submitting applications for bounce-back credit facilities. 

ASSESSING FIRMS

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THE ARTICLE WAS WRITTEN USING THE FOLLOWING SOURCES 

[SOURCE 1]Insolvency Service – Mindaugas Lidekauskas - BRO-BRU Details (bis.gov.uk) 

[SOURCE 2] UK Government – Fact Sheet – Bounce Back Loan – 31 March 2022 - Fact sheet: Bounce Back loans - GOV.UK (www.gov.uk) 

[SOURCE 3] UK Insolvency Service – Fact Sheet: Bounce Back Loan – 31 March 2022 - Fact sheet: Bounce Back loans - GOV.UK (www.gov.uk)