What Is Meant by Bounce Back Loan Misuse?
What is meant by Bounce Back Loan misuse? Bounce Back Loan misuse is largely confined to the following three actions:
- Falsely overstating turnover on the Bounce Back Loan application.
- Failing to use the Bounce Back Loan for the benefit of the business, but instead a director using it personally.
- Applying for more than one Bounce Back Loan in a limited company.
Misuse Defined
Bounce back loan misuse refers to any use of the loan funds that falls outside the scope of what the scheme allowed or intended. Officially, BBLS loans were to be used for “economic benefit of the business.” That could mean paying wages, suppliers, rent, or buying stock. It didn’t cover the use of the funds for personal benefit, such as transferring it to a director’s personal bank account, investing in cryptocurrencies or spending it on luxury items unrelated to the business.
The business was expected to repay it, and directors had to self-certify that their company was eligible, solvent, and genuinely affected by the pandemic.
Examples of Misuse
Common forms of bounce back loan misuse include:
Personal Spending: Using the loan to buy personal cars, holidays, or pay for home improvements.
Non-Trading Companies: Some directors applied for loans through companies that had ceased trading or had never traded at all. This has a high likelihood of being treated as fraudulent conduct with a director being disqualified.
Overstating Turnover: To get the maximum £50,000 loan, some businesses inflated their turnover figures. This is a serious offence and has often been considered fraudulent, particularly when the inflated turnover was considerably greater than the true level.
Transferring Funds Out: Moving loan monies upon receipt into a personal bank account of a director for something other than a salary payment.
- Multiple Applications: Applying for more than one Bounce Back Loan per business or limited company was a complete non-starter and impermissible. Failure to adhere to this would usually be considered fraudulent conduct by a director.
Consequences of Misuse
If a company goes into liquidation and it’s discovered the bounce back loan was misused, the consequences can be severe:
Director Disqualification: The Insolvency Service can disqualify a director for up to 15 years.
Personal Liability: Normally, a director isn’t personally liable for company debts contractually. But if there’s evidence of misuse or misfeasance, they may be made personally liable to compensate the company for some or all of the loan as a consequence of misconduct.
Criminal Prosecution: In extreme cases, particularly where fraud is evident, directors can face criminal prosecution by the Secretary of State for the Department of Business and Trade.
