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May 2021

Beware Bounce Back Bite Back?

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The UK’s first quarter figures for corporate insolvencies were almost 40% lower than the corresponding quarter for 2020. No surprise really, given the level of Government support to business these last 12 months. Part of this support has been in the form of the Bounce Back Loan Scheme [“BBL”] aimed specifically at the SME market whereby the Government has guaranteed 100% of the loan up to the maximum loan available of £50,000. The figures are truly astounding, with £46.6b of BBLs having been approved by 21 March 2021 and shared amongst over 1.5m qualifying claimants. There has been much speculation regarding fraudulent claims, particularly as the Office for Budget Responsibility has itself predicted a default rate of 40% on BBL and Coronavirus Business Interruption Loans.  In a classic case of closing the barn door after the horse has bolted, the Government is proposing new legislation to try and close a loophole that has, in the past, allowed rogue directors avoid scrutiny by simply paying £10 to Companies House to have their company struck off. Now of course, the strike off procedure, as laid out in the Companies House website, requires a detailed protocol to have been followed before making the strike off application, a key requirement being that directors advise all creditors that they intend to apply for strike off. The problem is that directors do not need to provide evidence to Companies House that they have complied with the terms of the protocol and there is no mechanism in place for Companies House to check compliance. So, for many years now, directors have avoided the proper consequences of liquidation – visibility and accountability, as they simply make the application without informing creditors. The new legislation will give the Insolvency Service [“TIS”] powers to investigate directors of companies that have utilised the aforementioned strike off route to fraudulently avoid repayment of the Government backed BBL loans. At the moment, TIS only has powers to investigate directors of companies that are still live or have entered some form of insolvency process.  And the additional resource to be given to TIS to...
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