Thousands of businesses relied on the government’s financial support initiatives to survive the coronavirus pandemic, but the schemes have been open to abuse.
By necessity, the government’s coronavirus pandemic financial support schemes were easy to apply for and quick to process, but this prevented lenders spending time on their usual due diligence. The risk of fraudulent Bounce Back Loan applications was acknowledged at the time. As repayments start falling due, more cases are coming to light.
Companies Act investigations- If a solvent company is suspected of obtaining funds fraudulently or other misconduct, its affairs can be investigated by the Insolvency Service. This can lead to criminal prosecution, as well as the directors being disqualified, and the company wound up in the public interest. If your company is investigated by the Insolvency Service, you must co-operate by answering their questions and providing the information requested. It’s a criminal offence to fail to comply.
Insolvency- Fraud often comes to light when a company enters insolvency. Directors cannot evade responsibility by winding their company up: the office holder has extensive powers to investigate the company’s affairs and can hold directors personally liable for funds that have gone walkabout.
Liquidation can also lead to disqualification and any wrongdoing uncovered being reported to the appropriate authorities.
While the affairs of both live and insolvent companies can be investigated and directors disqualified, if a company is dissolved and struck off while solvent, the directors’ conduct cannot presently be investigated. A Bill currently before parliament aims to close this loophole (the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill). This would operate retrospectively, to catch directors who have already obtained coronavirus loans only to dissolve and strike off their companies and use the funds themselves. Dissolution and striking off is a legitimate method of closing a business. Directors must be sure to follow the correct procedure for dealing with the company’s assets before applying to strike it off, so they don’t fall foul of these forthcoming changes.