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Bounce Back Loan abuse is in the news…the Insolvency Service is to be given new powers to crackdown on Bounce Back Loan abuse by enabling them to investigate directors of companies that have been dissolved.
This effectively closes a legal loophole. At present, the Insolvency Service, on behalf of the Business Secretary, only has the ability to investigate directors of live companies or those entering a form of insolvency.
These new powers have been driven, in part, by concerns that businesses are abusing the dissolution process to fraudulently avoid the repayment of loans under Bounce Back Loan scheme.
The powers at the disposal of the Insolvency Service are:
Another abuse that these powers are set to address is phoenixing. Here, the directors dissolve one company and set up a virtually identical business after the dissolution, often leaving employees, customers, suppliers and HMRC out of pocket.
The intention is for these measures to be retrospective. The Insolvency Service will be investigating companies that have already been dissolved to see if this this was appropriate or to avoid the repayment of Bounce Back Loans.
The Bounce Back Loan Scheme was a vital element of government support during the COVID-19 pandemic. It provided a quick injection of cash for businesses struggling to make ends meet.
However, it was always more of a band aid than a panacea. Businesses fail despite the best-efforts of the directors. In many cases, closing and dissolving the company is the correct course of action.
These powers are looking to target the small element who applied for a Bounce Back Loan with no intention to repay it.
Under the existing rules, directors of three companies have been banned for between eight and nine years where there had been misrepresentation in the application or the misuse of the funds.
You will find our previous article regarding the bounce back loan scheme by clicking here.
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