What do you need to know?

New research shows that in the last 12 months, The Insolvency Service has undertaken 36% more investigations into the alleged misconduct of directors of insolvent companies than in the year before. 

The average number of investigations increased from 142 per month between April 2021 and March 2022 to 193 between April 2022 and December 2022. 

Additionally, the number of cases referred to the Insolvency Service compliance and rageting? department which specifically investigates corporate abuse more than doubled from an average of 528 per month to 1,077 in the same period. 

While April’s corporate insolvency statistics reduced a little, more businesses entered insolvency proceedings in March 2023 than in any monthly period since records began – bookending the 12 months since March 2022 as the 12 months with the most cases since 1960. 

The number of directors getting into trouble through misusing Bounce Back Loan Scheme (BBLS) funds is also on the rise. 

In the financial year 2022/23, 459 directors were disqualified by The Insolvency Service after being found guilty of misusing money from a Covid-19 support scheme. In April and May alone, one in three of all directors disqualifications were for BBLS or CBILS related fraud. 

The National Audit Office (NAO) estimated that a total of £46.5 billion was paid to businesses through the BBLS through 1,531,095 individual loans. 

The majority (58%) were for the maximum allowed amount of £50,000 with the average total being borrowed at £30,000. 

We’ve previously written about the efforts to recoup as much of this money as possible – especially as the NAO estimates that £1.1 billion has been lost to fraud. To date only £11.4 million (1%) has been recovered so the authorities will be ramping up their investigations and recovery operations in the months and years ahead. 

Chris Horner, insolvency director with BusinessRescueExpert, said: “There has been some confusion about the idea of Bounce Back Loans being guaranteed so businesses don’t need to worry about repaying them as they’ll eventually be written off. 

“That’s not true. Yes, the government guaranteed the original loan at 100% of value through the British Business Bank but as part of the terms of the guarantee the bank has to make efforts to reclaim the amount. 

“And while a bank may write off the bounce back loan – the government won’t.

“We’ve seen instances of directors that have tried to dissolve their companies being blocked from doing so by the Department for Business and Trade (DBT) due to an outstanding bounce back loan. 

“The Insolvency Service and HMRC now have powers to investigate the actions of directors who improperly dissolved businesses or had them struck off in the past couple of years so it is imperative that any outstanding bounce back loan is either repaid in full or included in a liquidation process. 

“The important difference is that in a creditors voluntary liquidation (CVL) for example, a bounce back loan would be treated as unsecured debt and would be written off as part of the process along with other outstanding but unsecured arrears. 

“This is the only guaranteed method for a business to close, their unpaid debts dealt with and not worry about future investigations into their conduct.”

The news from the Insolvency Service combined with the increasingly stubborn interest rates remaining five times the Bank of England’s target of 2%, and with increasing interest rates will only contribute to further financial turmoil for small, medium and micro businesses for the rest of the year at least. 

And as economic conditions worsen, so naturally more instances of fraud and other types of misconduct will be discovered as directors make decisions they shouldn’t to try and keep their companies afloat and the authorities step up their efforts to uncover them. 

One good decision we can always recommend to business owners and directors concerned about their future prospects is to get in touch with us to arrange a free consultation. 

A member of our team of expert advisors will work with them from initial contact to better understand their situation – what difficulties they are facing and how they have addressed them so far – and present a range of viable options and solutions they could adopt. 

The earlier contact is made, the more options and choices directors will generally have so if this sounds familiar get in touch with us today while the choice to act is still yours.