COVID-support abuse accounts for half of all Director bans

According to figures from the Insolvency Service, more than half of all company Directors struck off in the past 15 months were involved in alleged fraud or abuse of COVID-19 financial support schemes.

The Government is clamping down on such fraudsters, and the figures also show that Directors guilty of coronavirus-related misconduct are facing lengthy disqualification periods.

The average length of bans handed out to directors last year was seven years, and four months – up from five years and 10 months in 2021-22.

Between 1 April 2022 and 30 June 2023, 1,200 directors were disqualified, with 611 cases involving COVID support schemes, mainly in relation to taxpayer-backed Bounce Back Loans. About £1.1 billion of loans have already been flagged as suspected fraud or error.

In May 2020, then Chancellor Rishi Sunak launched the £46.6 billion Bounce Back Loan Scheme (BBLS) to keep small and medium-sized businesses afloat during the pandemic.

This allowed them to borrow between £2,000 and £50,000 at low-interest rates from accredited lenders, with the Government acting as guarantor.

However, some directors used the money for reasons other than supporting their businesses, including to purchase cars or to fund other entities.

Many of these individuals are being pursued by the Insolvency Service, either in civil enforcement action or criminal prosecutions.

While it is proper that criminals defrauding the public purse are brought to justice, the looser rules surrounding BBLS have meant that many business owners maintain that they simply misunderstood the application criteria.

Roger Isaacs, Forensic Partner at Milsted Langdon, said: “The scale of fraud committed via these schemes is immense, but it is difficult to know whether disqualification from acting as a director serves much purpose.

“Many honest directors are so scarred by the experience of a business failure that they have no intention of ever running a company again. On the other hand, those with a propensity for dishonesty, all too often seem to be able to find friends or family to act as nominee directors while they continue to act with impunity as “shadow directors” behind the scenes.

“In theory, such shadow directors are acting unlawfully and should not benefit from limited liability but in practice, they are seldom prosecuted because the costs of a trial tend only to be justified in the largest and most complex cases where the requisite forensic accountancy evidence can be adduced .”


Source: Insolvency Service

Posted in The Forensic Blog.