Undoubtedly some directors have committed first-party frauds by abusing the government’s financial Covid-19 support packages.
Although set up in good faith, the structure of those packages coupled with the speed of their rollout unfortunately meant it was easy pickings for bad actors.
The most attractive was likely the Bounce Back Loan Scheme, not least because the borrower is required to self-declare that they meet the eligibility criteria, the government has provided a guarantee to the lenders for the borrower’s repayments and agreed to meet the interest payments for the first 12 months, and no collateral from the borrower is provided as security for repayment.
I can easily imagine the words 'who will find out?' and 'why shouldn’t I get something out of this – I’ve paid plenty of taxes in my time', rolling off the lips of many perfidious directors. It will have been all too easy for them to have falsely self-declared that the business met the eligibility criteria, used the loan for their personal benefit, or used a 'zombie' company to make the loan application.
In fact, HM Treasury reports that BBLS paid out approximately £46bn, but the National Audit Office predicts that the UK taxpayer could lose up to £26bn from fraud. Never has the UK taxpayer faced such a prospect. How, then, could we go about identifying and investigating this potential fraud?
Power to the insolvency practitioner
Given the 12-month interest-free period has ended and principal repayments under BBLS now need to be met, we can expect to see events of default leading to corporate insolvencies.
Helpfully, insolvency practitioners are well-placed to assist the UK taxpayer in deciphering which directors were unable to steer their businesses through the Covid-19 storm, and which ones knowingly made false self-declarations, misapplied loan funds, and used bogus companies to submit loan applications.
Already the Insolvency Service has notified insolvency practitioners that it is their duty to report all fraudulent Covid-19 loan applications in their director conduct reports.
Perhaps the intention is to use the information to expedite disqualification proceedings, thereby serving to eradicate those rogue directors, or to impose more severe sanctions as a deterrent to other schemes that may well be open to abuse in the future.
Insolvency practitioners also already have a whole raft of statutory powers for the purpose of establishing the liability of directors. For example, if during an insolvency practitioner’s investigation it has ultimately been found that a director has breached their fiduciary duties under the Companies Act and misdirected funds (that is, the loan proceeds) then they could seek to pursue repayment from the directors via the commencement of civil proceedings.
However, even if resources are available, the costs of the process are likely to exceed the value of any recoveries capable of being distributed to the UK taxpayer.