Insight
There has recently been an increase in the government taking action against those suspected of carrying out Bounce Back Loan Scheme (BBLS) fraud during the COVID-19 pandemic. The National Audit Office believes around 11% of the BBLS loans granted during that time went to people who applied fraudulently.
What was the Bounce Back Loan Scheme
In a nutshell, the BBLS was launched in May 2020 by the Department for Business, Energy & Industrial Strategy (BEIS). It was the largest of three COVID-19 related business loan support schemes. The loans, administered by banks and other commercial lenders targeted the smallest businesses and sought to provide them with loans of up to £50,000, or a maximum of 25% of annual turnover, to maintain their financial health during the pandemic.
Elements of the BBLS included a fixed interest rate of 2.5%; maximum loan length of either six or ten years; and in the first year of the loan, there was to be no capital repayments due. If that wasn’t attractive enough already, another aspect of the BBLS was that it aimed to deliver money to borrowers within 24 to 48 hours of applying. It is therefore understandable why the BBLS was so enticing to so many small business owners, at a time of such uncertainty.
Although the BBLS was implemented to support small businesses in a time of national crisis, due to the urgency at which they were implemented, it is now evident that this allowed for a significant amount of fraud to take place. The BEIS estimates that the losses due to fraud on the BBLS equates to around £4.9 billion, and that there has been a c.£17 billion loss as a result of the BBLS.
How did this happen?
The BBLS did not require lenders to check the information on the loan application form, or to perform credit and affordability checks. Lenders were simply required to conduct basic counter fraud tests, and people could self-certify documents that were required. As there was a complete absence of the normal stringent security checks, the government provided lenders a 100% guarantee on the loans, meaning that even if a borrower defaulted, the lender would be repaid in full. In turn, lenders were happy to lend to less dependable borrowers as they knew they would be repaid regardless of if the borrower could repay or not!
Unsurprisingly, a consequence of this was that many people applied for a loan – some unknowingly applied without understanding the rules, whilst others knew they were not eligible and still applied.
From the cases that are emerging, it appears that those who applied for the BBLS unscrupulously did things such as: inflated the turnover of their business, set up fake businesses to make a loan, impersonated another legitimate business or used intermediaries to take out loans who then filed for bankruptcy.
Unfortunately, there are a handful of people who honestly applied for the loan to help their business but due to not understanding the rules, or making errors in their applications, are now having to deal with the consequences of their mistakes.
What are the consequences?
There are severe and wide ranging consequences for those who are found to have committed BBLS fraud. These can include, but are not limited to:
- Fines
- Imprisonment
- Civil recovery orders
- Disqualification as a director
- Order to pay compensation.
The penalty ordered will depend on the circumstances of the fraud, the amount involved, the extent of dishonesty, and whether an attempt was made to repay the amount.
From April 2023 to March 2024, 831 (72%) of Company Directors Disqualification Act 1986 (CDDA) section 6 disqualifications, have been related to the COVID-19 financial support scheme abuse allegations.
Evidently, a popular avenue that is being pursued by the government is CDDA Compensation Orders, where disqualification orders are made against Defendants. This means that they order the Defendant to pay compensation, either to the Secretary of State for benefit of a creditor, or as a contribution to the assets of a company (CDDA 1996 ss15B). When considering the amount of compensation payable, what is considered is the amount of financial loss caused, the nature of the conduct, and whether the person has made any other financial contribution in recompense for their conduct (CDDA 1996 ss15B).
If you are facing an investigation or prosecution for BBLS fraud or any other fraud related matters, please contact a member of our dedicated Commercial Dispute Resolution Team for further information on how we can assist.