Insolvency Practitioners Duties Regarding Bounce Back Loan Abuse!

[Frank Wessely]

Here's another interesting one...

"Five individuals have separately been made subject to bankruptcy restrictions totalling 48 years as the Insolvency Service continues to identify and tackle abuse of the Bounce Back Loan scheme."

Further bankruptcy restrictions for Bounce Back Loan abuse

Bankruptcy restrictions totalling 48 years for five individuals who took Covid-19 financial support to which they were not entitled.

www.gov.uk

I recall earlier in this thread some of us were discussing bankruptcy and BBLs. In all 5 cases, these were debtor petitions (i.e. the individuals volunteered themselves for bankruptcy). So far I have still not come across any instances where the BBL lender or British Business Bank are petitioning for a sole trader's bankruptcy.

Has anyone come across any cases yet where a BBL lender is pursuing bankruptcy? @Lisa Thomas @Gavin Bates @Elliot Green @Chris Parkman @Frank Wessely ?

Following up on this thread, I have today spoken with two high street Banks who both clearly stated that it is not their policy to present petitions for compulsory liquidation or bankruptcy in relation to outstanding Bounce Back Loans (BBLs).

But they do have back office teams who will invite company directors to “personally and voluntarily” repay their companies’ BBLs where the company is unable to do so. As part of that conversation the directors are not typically informed that they have no legal obligation to do this.

I am seeing this every week at the moment.

Is anyone else seeing similar situations?

Thanks.

 

[ChrisCallaghan]

But they do have back office teams who will invite company directors to “personally and voluntarily” repay their companies’ BBLs where the company is unable to do so. As part of that conversation the directors are not typically informed that they have no legal obligation to do this.

Yup, I've come across this one a fair few times now. Even a few examples where the lender have written to the director(s), leaving the limited company name off the correspondence, despite the loan agreement being between the lender and a Ltd.

 

[Lisa Thomas]

Wow. I do worry about the number of directors that feel compelled to pay because they are not informed they don't have to. Screams of future claims against banks for wrongdoing to me...

 

[ChrisCallaghan]

Wow. I do worry about the number of directors that feel compelled to pay because they are not informed they don't have to. Screams of future claims against banks for wrongdoing to me...

It'll be the new PPI....

 

[Lisa Thomas]

Exactly!

 

[UK Contractor Accountant]

Latest OBR's assessment on BBL losses & write Offs

The OBR’s latest estimate is that the fiscal cost of the government’s guaranteed loan schemes will be £23.1bn, with £19.7bn coming from written off BBLS debt. In evidence to the Committee, the BEIS Permanent Secretary set out how the department was working with lenders to improve their BBLS debt recovery rates but indicated that BEIS was not planning to supplement the lenders’ collection activity except in cases of fraud.

Since fraud is expected to account for only a fraction of BBLS losses, that will mean debts making up the great majority of the £19.7bn will be written off with no further attempts by the government itself to recover them. Clearly, the government should not spend public money on BBLS collections that offer poor value for money. But there is evidence that with the right approach, the government can efficiently recover some of the aged BBLS debt passed on by lenders. The NAO report on the BBLS found:

● “Borrowers may have limited incentives to pay back the loans, and with a 100% guarantee, lenders have limited incentives to seek a full recovery”.

● Claiming on the guarantee “is not conditional on having completed the recoveries process – lenders are able to make a claim on the government guarantee ‘within a reasonable time period’ following the first formal demand date, or sooner, if lenders believe ‘no further payment is likely’”
.
● The BBLS “does not include actions to recover outstanding debt after the 12-month time limit, for example by requiring lenders to continue recovery processes in exchange for a fee”.

 

[william12]

Hi All,
Reading this thread has been very informative. I wonder if you could tell me your thoughts. I have a property ltd co that I own 25% of. My co-director/shareholder owns 75% he has a separate company that has failed and owes around £50 k (at least) (I think he took out a BBL.
He doesn't own anything of value except the shares of our company.
Can the insolvency/bankruptcy take Our company? I have no debt at all except for what mortgages we both have in the Property Company.

sorry if this is the wrong place to post this question

 

[Frank Wessely]

Hi All,
Reading this thread has been very informative. I wonder if you could tell me your thoughts. I have a property ltd co that I own 25% of. My co-director/shareholder owns 75% he has a separate company that has failed and owes around £50 k (at least) (I think he took out a BBL.
He doesn't own anything of value except the shares of our company.
Can the insolvency/bankruptcy take Our company? I have no debt at all except for what mortgages we both have in the Property Company.

sorry if this is the wrong place to post this question

Hi William12

This is the correct place to post so we can help you.

Based upon your outline I do not see that the failure of the other company will directly affect your business. This is assuming that your company has not provided any guarantees in support of the other company's debts. Also making the assumption that your co-shareholder has not created any personal security over his equity interest in your company in support of any private borrowings that he may have taken out.

I am further assuming that you have no interest in the other company as either a director or shareholder.

There could be a negative "ripple" effect on your company though in respect of it's credit rating and recommended contract limits as prescribed the main credit rating agencies. This is by virtue of the "common" director link in both businesses.

I hope this is helpful.

Thanks.

 

[william12]

Hi William12

This is the correct place to post so we can help you.

Based upon your outline I do not see that the failure of the other company will directly affect your business. This is assuming that your company has not provided any guarantees in support of the other company's debts. Also making the assumption that your co-shareholder has not created any personal security over his equity interest in your company in support of any private borrowings that he may have taken out.

I am further assuming that you have no interest in the other company as either a director or shareholder.

There could be a negative "ripple" effect on your company though in respect of it's credit rating and recommended contract limits as prescribed the main credit rating agencies. This is by virtue of the "common" director link in both businesses.

I hope this is helpful.

Thanks.

Thank you so much for this!
My worry is that he took out the BBL against his other company, splurged on a new van etc, I am worried that he has injected around 10k (of his BBL) into our property company, having checked the company statements the money came out of his personal account.
I am worried that he lied to get the money and then spent it on things he should not have. He doesn't own his own home, everything he has is in our company. If he's committed fraud (he's told me he expects to be disqualified as a director), the only assets he owns are in our company (the only company we are involved together in), can they not force a sale of our properties? I have no debt at all except for my home and properties in our company.

 

[william12]

Thank you so much for this!
My worry is that he took out the BBL against his other company, splurged on a new van etc, I am worried that he has injected around 10k (of his BBL) into our property company, having checked the company statements the money came out of his personal account.

I am worried that he lied to get the money and then spent it on things he should not have. He doesn't own his own home, everything he has is in our company. If he's committed fraud (he's told me he expects to be disqualified as a director), the only assets he owns are in our company (the only company we are involved together in), can they not force a sale of our properties? I have no debt at all except for my home and properties in our company.

The ripple effect has happened as we cannot refinance now and all our mortgages are trackers.

 

[william12]

when I purchased the shares is it of no consequence? as long as I have paid for them in full and I am a shareholder and director on CH?

 

[Frank Wessely]

when I purchased the shares is it of no consequence? as long as I have paid for them in full and I am a shareholder and director on CH?

Hi William12

Yes you should be recorded as such. If you can send me the name of the company by direct message I am happy to check for you.

Thanks.

 

[william12]

Frank, I sincerely appreciate the offer but I don't know which IP he's using and I'd rather not just in case it is you. Falling out with him is not something I want to do, I hope you understand.

We have been friends for years and I recently (may) gave him nearly £40,000 for 24% shares in this company. I just wish he had used it for paying back his BBL.

 

[Frank Wessely]

Thank you so much for this!
My worry is that he took out the BBL against his other company, splurged on a new van etc, I am worried that he has injected around 10k (of his BBL) into our property company, having checked the company statements the money came out of his personal account.

I am worried that he lied to get the money and then spent it on things he should not have. He doesn't own his own home, everything he has is in our company. If he's committed fraud (he's told me he expects to be disqualified as a director), the only assets he owns are in our company (the only company we are involved together in), can they not force a sale of our properties? I have no debt at all except for my home and properties in our company.

The ripple effect has happened as we cannot refinance now and all our mortgages are trackers.

Hi William12

I may be able to assist. One of the services we provide is to help businesses improve their company credit rating. It is risk free in that you would only pay on a results basis and it leaves no footprint on your credit file.

Have a look here https://www.quantuma.com/corporate-credit-rating

Let me know if you would like further information.

As regards your other question I suggest that we should speak. There is no doubt a lot of background to consider.

Thanks.

 

[Frank Wessely]

Frank, I sincerely appreciate the offer but I don't know which IP he's using and I'd rather not just in case it is you. Falling out with him is not something I want to do, I hope you understand.

We have been friends for years and I recently (may) gave him nearly £40,000 for 24% shares in this company. I just wish he had used it for paying back his BBL.

Just search the company online at Companies House; that will tell you which IP he is using.

Thanks.

 

[william12]

Frank, I will be in touch next week.

Thank you !!!

 

[Frank Wessely]

@william12 I see that you are posting the same topic separately in the

Frank, I will be in touch next week.

Thank you !!!

That's fine. Have a good weekend.

 

[UK Contractor Accountant]

if he is made personally bankrupt then his shares in the property company will come into play as part of his assets the Official Receiver will take control over.

 

[william12]

That is definitely not what I wanted to hear UK contractor. I was worried that that would be the case though.

 

[ChrisCallaghan]

@william12 I see that you are posting the same topic separately in the

That's fine. Have a good weekend.

Hi Frank,

I've just spotted these posts. I hope we've not given any conflicting info! ?

@william12 I'm happy to answer any further questions on the thread you've posted, and you also now have Frank's details for any concerns you have.

 

[william12]

Is there anything I can do to take his shares off the table? if I was to purchase 51% of the shares?

There is conflicting information yes.

 

[ChrisCallaghan]

Is there anything I can do to take his shares off the table?

Yes. You could buy them for fair value. It would be advisable to have them independently valued if you went down this path.

If you were to buy them for less than their true value, any trustee appointed in your co-director's bankruptcy would come after you for buying the shares at under value.

 

[japancool]

The IPs here will correct me if I'm wrong, but the worst that would happen would be that he would be required to dispose of his shares, so you'd have the chance to buy them if that happens - but at fair value.

EDIT: Chris beat me to it.

 

[ChrisCallaghan]

EDIT: Chris beat me to it.

?

You can tell it's a Friday afternoon when my response are quick.

 

[Frank Wessely]

Hi Frank,

I've just spotted these posts. I hope we've not given any conflicting info! ?

@william12 I'm happy to answer any further questions on the thread you've posted, and you also now have Frank's details for any concerns you have.

I am sure we haven't! It has been something resembling The Frank and Chris Show today.

 

[ChrisCallaghan]

I am sure we haven't! It has been something resembling The Frank and Chris Show today.

We have been busy!

 

[UK Contractor Accountant]

11Yrs Disqualification for this one! - even went to the trouble of getting a falsified invoice drawn up to hide payment for a car.

On 5 May 2020 SR(Mr R) caused AS Ltd (“A Ltd”) to make a false application for a Bounce Back Loan (“BBL”) of £25,000 in breach of the terms of the scheme, in that:

• Bounce Back Loans between £2,000 and 25% annual turnover (up to a maximum of £50,000) were made available from 5 May 2020;

• Accounts approved by him for years ended 31 January 2019 & 2020 show turnover of £1,195 & £2,488 respectively so A Ltd would have been entitled to a maximum loan of £2,000;

• He knew or ought to have known that the turnover information supplied to support A Ltd loan application was false. Furthermore, he caused A Ltd to supply a falsified invoice to the liquidator to explain a payment of £20,000 from the BBL funds made to a 3rd party:

• On 30 July 2020 £20,000 was paid from A Ltd bank account to a 3rd party with the initial payment reference “Car” on the bank statements;

• On 22 September 2022, he emailed a copy invoice to the liquidator purportedly from a 3rd party to Aspire in respect of a business expense which appears to have been falsified. • The payment of £20,000 does not appear to have been for the economic benefit of A Ltd, and as such, was made contrary to the terms of the BBL scheme.

 

[Frank Wessely]

As some following this thread may already be aware, an interesting news item surfaced over the weekend regarding the approach by Barclays Bank to a number of Bounce Back loans where the Bank has identified that the applications were probably fraudulent. Winding up petitions have been issued in the Courts against around 100 borrowers. On the assumption that these will all be wound up, the Bank and the Government have engaged Manolete Partners, a prominent litigation funder, to chase the borrowers and split any recoveries with the Government. Although this is a drop in the ocean - Barclays issued 345,006 loans worth £10.8billion - it is a noteworthy development and I expect other Banks to follow suit. I suspect that they had a "gentle" nudge from the Department for Business, Energy and Industrial Strategy.

Barclays bank settles on specialist team to tackle Covid fraudsters

The partnership could generate hundreds of thousands of pounds in income for Manolete, which specialises in funding complex insolvency cases.

www.thisismoney.co.uk

Thanks.

 

[ChrisCallaghan]

Thanks for sharing Frank. Very interesting indeed!

 

[Lisa Thomas]

And so it begins...

 

[UK Contractor Accountant]

Well haven't updated for a while but that there has been spate of criminal convictions for BBL abusers lately so good time to update on what Prison sentences are being handed out following reporting by IP's to the Insolvency Service or identified via the cross government counter fraud checking system.

first bad boy for today - Stanmore consultancy boss who claimed £25,000 before closing the business in effort to avoid repaying taxpayer loan.

London businessman has been sentenced to six months in prison, suspended for 18 months, after pleading guilty to fraud by abusing the Bounce Back Loan scheme. Rajesh Dhirajlal Vaghela, 46, from Stanmore, received a £25,000 loan before closing his business in an effort to avoid repaying the taxpayer loan. Vaghela was also ordered to pay £2150 court costs. He had repaid the loan in full before being sentenced.

This sentence reflects the thoroughly dishonest conduct of Rajesh Vaghela and should serve as a warning to others who engaged in this behaviour that they are at risk of criminal prosecutions and could potentially end up in prison.

Vaghela was caught through new powers granted to the Insolvency Service in December 2021, which allow it to investigate directors of dissolved companies who are suspected of closing their business to avoid repaying Covid-19 support loans.

Vaghela, who was a director of RKV Consultancy Ltd, which had traded as a consulting firm from Stanmore since its incorporation in March 2019, applied for a £25,000 Bounce Back Loan from his bank on behalf of the consultancy in May 2020.

The loan was paid into the company’s bank account but within a week of receiving the money, Vaghela filed paperwork with Companies House to have the business dissolved, and later transferred all the loan money to personal bank accounts.

The striking-off application to dissolve a company makes clear that creditors, such as a bank with an outstanding loan, should be notified within seven days of applying to close the business and that failure to notify interested parties is a criminal offence.

After RKV Consultancy Ltd was dissolved, in October 2020, the Insolvency Service and cross-government counter-fraud systems identified its closure as probable Bounce Back Loan fraud.

Investigators found that Vaghela had not informed his bank of his application to dissolve the consultancy – a breach of the law.

He pleaded guilty to charges under the Companies Act 2006 and Fraud Act 2006 at Willesden Magistrates Court in February 2023 and was sentenced by His Honour Judge Donne KC, on 13 April 2023 at Harrow Crown Court.

 

[ChrisCallaghan]

I commented on different thread recently how the IS seem to be latching onto the failure to notify creditors issue.

 

[ChrisCallaghan]

22 years of bans for two separate company directors who dissolved their businesses to take covid loan scheme money

Takeaway owner from Oldham and company director from Kings Langley in Hertfordshire falsely claimed Bounce Back Loans totalling around £69,000 before dissolving their companies.

www.gov.uk

2 separate cases in the above, Rukia Begum and Grant Gorgin

"Two months after receiving the Bounce Back Loan, Begum applied to dissolve the company. She signed the application form, despite this stating that a failure to notify any creditors was an offence."

"She (Begum) had also allowed the takeaway to continue trading in the three months before her application to dissolve New Polash Oldham Ltd – a breach of the Companies Act 2006."

"And Gorgin failed to notify the bank from which he had borrowed the money that he had applied to strike off the company – breaching a legal obligation for directors to notify creditors when dissolving their business."

 

[UK Contractor Accountant]

2 separate cases in the above, Rukia Begum and Grant Gorgin

the link doesnt actually mention if they were actually prosecuted - only that they received a disqualification order.

wonder what the trigger event is to be sent off for a Court Hearing and prosecution?

Have only a few showcase prosecutions been filed as a reminder to others to follow the Law on Stike Off's etc

 

[UK Contractor Accountant]

Bad Boy no 2

Sameer Saeed was convicted on four counts under the Companies Act and Fraud Act following an Insolvency Service investigation.

Saeed was sole director of Digital Business Box Ltd and The Home Wills Ltd. In relation to the former, he secured a £50,000 Bounce Back Loan based on inflated turnover, and applied to dissolve the company two weeks later. In relation to the latter, he attempted to secure a £50,000 Bounce Back Loan although the company had only been established on 31 March 2020 and was therefore not eligible for any funding through the scheme. He did not receive the funds, but his attempt to secure a second loan was deemed an aggravating aspect in court.

He pleaded guilty to offences under the Companies Act as well as fraud offences. Saeed was sentenced at Snaresbrook Crown Court on 21 December 2022 to 20 months imprisonment, suspended for 18 months, and 300 hours of unpaid work. He has undertaken to repay the £50,000 Bounce Back Loan to the bank.

 

[ChrisCallaghan]

the link doesnt actually mention if they were actually prosecuted - only that they received a disqualification order.

wonder what the trigger event is to be sent off for a Court Hearing and prosecution?

Good point! Not sure what the trigger event would be. The scenario you posted is very similar to Rukia Begum and Grant Gorgin cases.

 

[UK Contractor Accountant]

Bad Girl this time - seems the common theme is the attempt to dissolve companies immediately after receiving a BBL and not notifying creditors and interested parties.

Antonia Parkes was convicted of an offence under the Companies Act. She was director of Conwy Valley Lodge Ltd, which ran a hotel close to Snowdonia in Wales. The company situation deteriorated after the start of the pandemic, and she sought financial assistance from the government. Through the Bounce Back Loan scheme, genuine businesses impacted by the pandemic could take out interest-free loans of up to £50,000.

The Insolvency Service investigation found that Parkes had secured a £20,000 Bounce Back Loan, immediately before she applied to dissolve the company.

The striking-off application to dissolve the company was explicit that interested parties and creditors, such as a bank with an outstanding loan, must be notified within seven days of making an application to dissolve a company. The form also highlighted that failure to notify interested parties is a criminal offence, however Parkes did not heed this warning.

She was sentenced on 14 December 2022 at Llandudno Magistrates Court to 26 weeks’ imprisonment suspended for 12 months, with an unpaid work requirement of 120 hours.

 

[UK Contractor Accountant]

Bad Boy Jailbird No 3

Ben Hamilton, 34, from Middlesbrough, has been sentenced to 15 months imprisonment, suspended for 18 months, after being convicted under the Companies Act following abuse of the Bounce Back Loan financial support scheme in 2020.

Hamilton was director of Netelco Ltd, a telecommunications design and installation business based in Bishop Auckland.

The company had been incorporated in 2018 and in May 2020 Hamilton applied for a £25,000 Bounce Back Loan from his bank on behalf of his business. Under the Bounce Back Loan scheme, genuine businesses impacted by the pandemic could take out interest-free taxpayer-backed loans of up to £50,000.

The loan was paid into the company bank account on 14 May 2020 and the following day Hamilton filed paperwork with Companies House to have the business dissolved.

The striking-off application to dissolve the company was explicit that interested parties and creditors, such as a bank with an outstanding loan, must be notified within seven days of making an application to dissolve a company. The form also highlighted that failure to notify interested parties is a criminal offence, however Hamilton did not follow these rules.

The company was dissolved in December 2020, and was subsequently identified as likely Bounce Back Loan fraud as part of the government’s forensic counter-fraud work.

 

[UK Contractor Accountant]

Bad Boy Files - Jailbird no 4 handed 12 Months Prison Sentence

Kulwinder Singh Sidhu, 58, from Stanwell, has been sentenced to 12 months imprisonment, after pleading guilty to offences under the Companies Act and the Fraud Act, having abused the Bounce Back Loan financial support scheme in 2020.

Sidhu was director of Wavylane Ltd, a haulage company based in Stanwell, and which had been trading since 2010.

On 9 June 2020 Sidhu applied for a £50,000 Bounce Back Loan from his bank on behalf of his business. Under the Bounce Back Loan scheme, genuine businesses impacted by the pandemic could take out interest-free taxpayer-backed loans of up to a maximum of £50,000.

The loan was paid into the company bank account and on 26 June 2020 Sidhu filed paperwork with Companies House to have the business dissolved, having transferred the funds to his personal bank account within two days of receipt.

The striking-off application to dissolve the company was explicit that interested parties and creditors, such as a bank with an outstanding loan, must be notified within seven days of making an application to dissolve a company. The form also highlighted that failure to notify interested parties is a criminal offence, however Sidhu did not follow these rules.

The company was dissolved in October 2020, and was subsequently identified as likely Bounce Back Loan fraud by the Insolvency Service and cross-government counter-fraud systems.

The Insolvency Service investigation found that Sidhu had fraudulently overstated the company turnover in the Bounce Back Loan application, and within two days of receiving the money he had transferred it to his personal account before dispersing the funds to his son and another company.

He pleaded guilty to charges under the Companies Act 2006 and Fraud Act 2006 at Guildford Crown Court on 19 December 2022. He was sentenced on 13 February 2023 at Guildford Crown Court.

The court imposed a confiscation order for £50,000, and Sidhu has paid this in full.

In addition to the custodial sentence, Sidhu was also disqualified as a director for six years.

 

[Lisa Thomas]

Interesting, thanks for sharing.