Co-directors of a specialist tuition centre have been banned for a total of 21 years, after they fraudulently claimed £100,000 in Bounce Back Loans (BBL), through two companies.
Following an investigation by the Insolvency Service, the two were disqualified for 10 and 11 years respectively, as a result of their duplicitous claim.
The disqualifications prevent both from directly, or indirectly, becoming involved with promotion, formation, or management of a company, without the express permission of the court.
Following a successful application for a BBL in May 2020, based on estimated turnover of £200,000, the company went into voluntary liquidation in January 2021 which triggered an investigation by the Insolvency Service.
The investigation found that, at time of liquidation, the company’s liabilities were severely understated, and it went on to uncover that turnover was also severely misstated in order to qualify for the loan in the first place.
Furthermore, the directors made payments to family members out of the funds and, despite claiming these were business expenses, could not prove this to be true.
This same series of events was replicated by one of the co-directors, in relation to another business that he was the sole director of.
This is the latest in a number of bans issued by the Insolvency Service, against directors who have misused the support schemes put in place to aid those worst affected by COVID.
The Insolvency Service has been given new powers to investigate, disqualify and potentially prosecute company directors who abuse the dissolution process.
The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act will also help tackle directors dissolving companies to avoid repaying Government-backed loans taken out during the pandemic.
Under the terms of the Act, the Insolvency Service, on behalf of the Business Secretary, will be able to investigate and tackle ‘unfit’ directors who place their firm in administration to avoid paying subcontractors and suppliers.
Where misconduct is identified, directors can face sanctions including being disqualified as a company director for up to 15 years or, in the most serious instances, prosecution.
The Business Secretary will also be able to apply to the court for an order to require a disqualified director of a fraudulently dissolved company to pay compensation to creditors who have lost out as a result of their dishonest actions.
In addition, the Insolvency Service will be able to investigate live companies where there is evidence of wrongdoing, such as misuse of COVID support.
Appropriate use of Bounce Back Loans
It’s important to keep in mind that, if you are a limited company director in receipt of a BBL, the loan belongs to your company and not to you personally. Funds should not be extracted from your business as dividends since these can only be declared from retained profits.
Inappropriate use of a BBL, or improper extraction of the funds from your business can result in you being personally liable for any monies needing to be recovered.
It is possible to utilise a BBL for working capital, investment or simply to support your income; though, where it is intended to cover your living expenses it should be extracted via payroll.
Supporting directors with their responsibilities…
This latest case acts as a stark reminder of the responsibilities that come with being the director of a company, and the consequences associated with failing to understand the significance of these.
In our role as accountants and business advisers, we work with hundreds of directors and, in doing so, support them to always be compliant with relevant legislation and to take their responsibilities seriously.
If you’re a director and you find that you are struggling to keep on top of your obligations, give us a call on 01462 708810 or fill in our online enquiry form, and one of our professionals from Letchworth, Biggleswade or Huntingdon will be in touch.