Covid loans - The word Fraud stamped onto a white background
February 22, 2022

Covid loans – what to do if you were incorrectly awarded a loan

More than 1.6 million Covid loans were issued to UK businesses during the pandemic via the Bounce Back Loan Scheme (BBLS) and the Coronavirus Business Interruption Loan Scheme (CBILS).

The loans were designed to support trading or commercial activity to keep businesses running during difficult times and were categorically not for personal use.

The system for applying for Covid loans was remarkably simple, however, with applicants simply required to apply online using an automated system. As a result, many business owners and company directors are suspected to have misused the funds that they received and now could be guilty of fraud.

Price Waterhouse Cooper has estimated that 11.1% or £4.9 billion of BBLs were fraudulently applied for.

A number of examples of misuse have recently come to light including a £22,000 redundancy payment made to the wife of a director upon receipt of a BBL, despite the fact she was not actually employed in the business, and a £25,000 BBL given to a director of a business that had been dissolved two years earlier.

The government stated that Bounce Back Loan finance must be used for the ‘economic benefit of the business.’ Failure to do this may constitute misuse.

Therefore, examples of misuse could include:

The Insolvency Service has highlighted a number of quite shocking cases, which have resulted in company directors being banned following investigations that found that government-backed Covid loans had been inappropriately applied for or misused. It just goes to show that those chickens really do come home to roost!

These are perhaps extreme cases of blatant fraud but there are many company directors who will have inadvertently or naively misused their Covid loans and might find themselves under investigation.

The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 gives the Insolvency Service new powers to tackle unfit directors who dissolve companies to avoid paying their liabilities. The Act also helps to tackle directors who dissolve companies to avoid repaying government backed loans put in place to support businesses during the coronavirus pandemic.

The Insolvency Service has powers to investigate directors of companies that enter a form of insolvency, including administration and liquidation. The Insolvency Service may also be instructed to investigate live companies where there is evidence of wrongdoing.

This Act extends those investigatory powers to directors of dissolved companies and if misconduct is found, directors can face sanctions including being disqualified as a company director for up to 15 years or, in the most serious of cases, prosecution.

If you received a Bounce Back Loan or a Coronavirus Business Interruption Loan and are unsure whether the loan has been used correctly or fear that you could be investigated for fraud, please get in touch. It is far better to deal with any mistakes head-on and to rectify the situation as soon as possible.

Our debt recovery experts can be contacted by emailing or by phoning our Altrincham office on 0161 929 8494, our Stoke-on-Trent team on 01782 205000 or our Birmingham office on 0121 516 3025.