Firstly, we will investigate whether any directors committed fraud in respect of the initial application for the loan by verifying that the company met the criteria to take out the loan in the first place.
For example, we’ll check if the company was already in difficulty on the 31st of December 2019, and if it was indeed adversely affected due to the pandemic.
Next, we’ll investigate what the funds were used for. The terms stipulated that the loan must
‘provide an economic benefit to the business’ and ‘not be used for personal use.‘
If we determine that there has been misuse of the funds, or that misleading information was provided in the application process, then we will report that information to the Insolvency Services.
As regards to ‘personal use’, the Insolvency Services later determined that if directors withdrew some or all of the loan personally, it might have been reasonable if it was to cover their living costs if they had no other means of getting income – like for example, in cases where these were director-shareholders who couldn’t claim for furlough funds because they weren’t paid a wage and their income had previously derived from dividends.
The Insolvency Services have got the power to then either disqualify the directors or begin civil proceedings against them.
We must advise the services when we find directors who have provided false information in connection with any Covid scheme application, or where we find that directors removed BBL proceeds for their personal benefit.
Insolvency Practitioners can also pursue the directors under section 212 of the Insolvency Act for misfeasance, and this can run in addition to, or alongside, the actions taken by the Insolvency Services.
In addition, if the directors have drawn these funds out of the company, they will usually be classed as a director’s loan account. This effectively means the company ‘loaned’ the money to the directors, and that they’re responsible to repay it – so we will ask the directors to make the repayment.