The word Fraud stamped on a white sheet


More than 1.6 million Covid loans were issued to UK businesses during the pandemic via the Bounce Back Loan Scheme (BBLS) and the Coronavirus Business Interruption Loan Scheme (CBILS).

The loans were designed to support trading or commercial activity to keep businesses running during difficult times and were categorically not for personal use.

The system for applying for Covid loans was remarkably simple, however, with applicants simply required to apply online using an automated system. As a result, many business owners and company directors are suspected to have misused the funds that they received and now could be guilty of fraud.

Price Waterhouse Cooper has estimated that 11.1% or £4.9 billion of BBLs were fraudulently applied for.

A number of examples of misuse have recently come to light including a £22,000 redundancy payment made to the wife of a director upon receipt of a BBL, despite the fact she was not actually employed in the business, and a £25,000 BBL given to a director of a business that had been dissolved two years earlier.

The government stated that Bounce Back Loan finance must be used for the ‘economic benefit of the business.’ Failure to do this may constitute misuse.

Therefore, examples of misuse could include:

  • Using the funds to purchase new personal assets
  • Transferring the lump sum to a personal bank account
  • Giving the money to a third party, such as a family member or friend
  • Funding a significant increase in directors’ salaries or dividends

The Insolvency Service has highlighted a number of quite shocking cases, which have resulted in company directors being banned following investigations that found that government-backed Covid loans had been inappropriately applied for or misused. It just goes to show that those chickens really do come home to roost!

  • In the first case the Insolvency Service found that company director Rafael Scher used N&S Solutions to apply for a BBL of £30,000, despite the company having been insolvent and having gone into administration in August 2019 with debts of £150,000. Scher used the £30,000 loan to pay £29,940 to a single trade creditor, but ignored other creditors with sizable debts, and also the company’s tax liabilities which amounted to over £94,000. He signed a disqualification undertaking which prevents him from acting as a director for nine years.
  • Another investigation found that Mujeebullah Khan improperly applied for a government-backed Bounce Back Loan of £50,000 in the business name after the sale of the company. He and business partner Muhammed Omair Javaid used the loan to repay a business creditor who was also a relative of Javaid’s. Both Khan and Javaid made themselves bankrupt on 24 May 2021, citing debts of over £200,000 which included the Bounce Back Loan. Both signed bankruptcy undertakings that extend their restrictions for eight years, meaning they are limited to what credit they can access, as well as not being able to act as company directors without the permission of the court.
  • On 11 November 2020 Nuneaton publican Malcolm Wilks received a Bounce Back Loan of £19,000. A day later, the supervisor of his IVA terminated the agreement and confirmed to the Insolvency Service that Wilks had only made two repayments. As a result of the Insolvency Service investigation, it was established that Wilks transferred nearly £17,000 of the Bounce Back Loan into his personal bank accounts. From there, he paid over £4,100 to his ex-girlfriend and spent £1,120 on online gambling. Nearly £3,500 was withdrawn in cash and cannot be accounted for. Only £6,500 was allocated as wages for himself to cover the period when he wasn’t working. Separately, Wilks received £1,100 in business rates refunds in December 2020, just weeks prior to declaring himself bankrupt. He received a further £10,500 in subsequent weeks which he failed to disclose to the Official Receiver. He is now subject to an eight-year bankruptcy restriction.
  • Raashid Khan was disqualified as a director for 12 years after fraudulently claiming £50,000 through BBLS. Just days before his company went into administration, Khan transferred the full amount out of the company’s account to himself. Two of his companies secured Bounce Back Loans, at least one of which was based on false information and one of the Glasgow-based companies secured two Coronavirus Business Interruption Loans totalling £240,000 also based on false information.

These are perhaps extreme cases of blatant fraud but there are many company directors who will have inadvertently or naively misused their Covid loans and might find themselves under investigation.

The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 gives the Insolvency Service new powers to tackle unfit directors who dissolve companies to avoid paying their liabilities. The Act also helps to tackle directors who dissolve companies to avoid repaying government backed loans put in place to support businesses during the coronavirus pandemic.

The Insolvency Service has powers to investigate directors of companies that enter a form of insolvency, including administration and liquidation. The Insolvency Service may also be instructed to investigate live companies where there is evidence of wrongdoing.

This Act extends those investigatory powers to directors of dissolved companies and if misconduct is found, directors can face sanctions including being disqualified as a company director for up to 15 years or, in the most serious of cases, prosecution.

If you received a Bounce Back Loan or a Coronavirus Business Interruption Loan and are unsure whether the loan has been used correctly or fear that you could be investigated for fraud, please get in touch. It is far better to deal with any mistakes head-on and to rectify the situation as soon as possible.

Our debt recovery experts can be contacted by emailing or by phoning our Stoke-on-Trent team on 01782 205000 or our Altrincham office on 0161 929 8494.