What is Deemed as Fraud or Misuse of a Bounce Back Loan?

As directors and sole traders, it’s crucial to understand what constitutes Bounce Back Loan fraud or misuse.

Broadly speaking, BBLS fraud or misuse falls into two categories:

Hard Fraud: This involves deliberate acts of deception with the intention to gain financial advantage. Examples include:

  • Setting up fake businesses to obtain loans
  • Impersonating others to apply for loans
  • Submitting falsified documents during the application process

Soft Fraud: This refers to unintentionally misleading statements or actions during the loan application process that may not be entirely accurate. It can include:

  • Overstating turnover figures to qualify for a larger loan
  • Misunderstanding the eligibility criteria for BBLs
  • Using imprecise language regarding the intended use of funds

It’s important to understand that unintentional mistakes can occur. Perhaps you misinterpreted the BBL rules, or someone within your business made an error during the application process. While clear cases of deception will be prosecuted, there may be more flexibility for addressing unintentional mistakes.

In this article, we’ll explore these issues in depth, providing practical insights to help you understand your position and the potential legal implications.

If you are a director who needs experienced bounce-back loan support, please contact us via live chat, telephone, or email. We offer clear, practical advice that lays out your options with complete transparency.


Common Types of Bounce Back Loan Fraud

As insolvency practitioners, we’ve observed several recurring patterns in BBLS fraud cases. Understanding these can help you assess your own situation and ensure compliance.

  1. Application Fraud: This involves providing false information during the loan application process. Examples include:
  • Inflating turnover figures to secure a larger loan
  • Claiming eligibility when your business had ceased trading before the pandemic
  • Failing to disclose existing financial difficulties
  1. Multiple Applications: Some businesses applied for loans through multiple entities or lenders, exceeding the scheme’s limits. This is particularly problematic for directors of multiple companies.
  2. Misuse of Funds: While the loans were intended to provide economic benefit to the business, some recipients used them improperly:
  • Transferring funds to personal accounts
  • Purchasing personal assets
  • Paying increased dividends or salaries directly from the loan
  1. Shell Company Fraud: In more severe cases, individuals set up fake businesses or acquired dormant companies solely to access loans.
  2. Third-Party Facilitation: Some applicants used intermediaries to obtain loans, who then declared bankruptcy to avoid repayment.

It’s crucial to note that even if you didn’t intend to commit fraud, misunderstanding the rules or delegating the application process to someone who made errors could still lead to scrutiny.

What Happens if you Misused a Bounce Back Loan?

If you’re concerned about potential Bounce Back Loan fraud, it’s crucial to understand the legal consequences you might face.

Firstly, in serious cases, you could face criminal prosecution under the Fraud Act 2006. This might result in imprisonment for the most severe offences, substantial fines, and a criminal record. We’ve seen cases where directors received custodial sentences for deliberately misleading lenders.

Another common consequence is director disqualification. The Insolvency Service has been actively pursuing this route, and you could be banned from acting as a director for up to 15 years. This would severely limit your ability to run a business in the future.

You might also face civil recovery actions. The government may pursue you to recover fraudulently obtained funds, which could lead to confiscation orders or even bankruptcy proceedings.

However, it’s important to note that authorities often distinguish between deliberate fraud and genuine mistakes. If you’re worried about unintentional errors, seek legal advice promptly.

If I Close a Company, Will the Use of the Bounce Back Loan Loan Be Investigated?

Yes, closing a company with an outstanding Bounce Back Loan (BBL) will likely trigger an investigation into how the loan was used. Here’s what you need to know:

The Insolvency Service and insolvency practitioners must investigate BBL usage in companies that are closing, entering administration, or undergoing insolvent liquidation.

Insolvency practitioners are required to:

  • Identify if the loan was a BBL and obtain all relevant documentation
  • Verify information provided during the application process
  • Confirm the company met the qualifying criteria for the loan

Investigators will examine the company’s trading status, turnover figures, and insolvency status as of 31 December 2019. They’ll also scrutinise how the funds were used in the ordinary course of business.

Reporting Concerns to the Insolvency Service

If anything suspicious is discovered, Insolvency practitioners must report any concerns to the Insolvency Service. Depending on the issues discovered, additional reporting to HMRC may be necessary, and in some cases, a Suspicious Activity Report (SAR) might be filed.

Evidence examination will include careful scrutiny of bank statements and company accounts to confirm the proper use of BBL funds.

Concerned About Unintentional Bounce Back Loan Misuse? Here’s What to Do

If you’re a business owner worried that you may have unintentionally misused your Bounce Back Loan, it’s crucial to act promptly. The situation might feel overwhelming, but remember, many directors have faced similar concerns.

The key is to seek expert advice as soon as possible. An experienced insolvency practitioner like ourselves can help you understand your position, review your loan usage, and guide you on the best course of action. We can also assist in preparing any necessary documentation and advise on potential next steps.

If you need help understanding the best way forward for your company, use the live chat during working hours, or call us on 0800 074 6757. We’ve helped 1000’s of directors navigate difficult financial circumstances.

Bounce Back Fraud FAQs

If you suspect that you may have committed fraud inadvertently, the first step is to consult legal advice to understand the ramifications and possible corrective measures. It is generally advised to approach your lender and regulatory bodies to correct the situation, although this should be discussed with your legal counsel first.

A negotiated settlement is a possibility, but the likelihood of this option depends on multiple factors including the severity of the fraud, the lender’s policies, and prevailing laws. Legal advice is crucial when considering this course of action.

Ignorance is generally not considered a valid defence in legal proceedings for fraud. It is your responsibility to understand the terms and conditions of the Bounce Back Loan before accepting the funds.