Insolvency Service investigates COVID-19 fraud

The Insolvency Service has been given the power to investigate company directors who deliberately wind-up firms to avoid repaying their emergency COVID-19 debt.

Directors found guilty of abusing insolvency procedures in this way could be banned from acting as a director for up to 15 years and potentially face criminal prosecution.

The Insolvency Service has issued a press release giving several stark examples of the penalties directors face if they attempt to get out of repaying loans, such as the Bounce Back Loan Scheme (BBLS).

One such director is Rashid Khan, who has been disqualified as a director for 12 years after fraudulently claiming £50,000 through the BBLS before transferring the full amount out of the company’s account to himself just days before his business went into administration.

As an Insolvency Service investigator commented, the BBLS was made available to help support businesses during the pandemic, adding that the body takes abuse of the system “extremely seriously”.

The Insolvency Service will also soon have extra powers to investigate BBLS fraud in cases where the company has been dissolved.

If the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill passes through Parliament, the Insolvency Service will be able retrospectively to investigate companies that have already been wound up.

Helen Gregory, Forensic Director at Milsted Langdon, said: “Directors who are contemplating winding up their companies will need to ask themselves whether they can justify what they did with any Bounce Back Loans..

“Cases like that of Mr Khan’s will be straightforward but other circumstances might not be quite so clear-cut.  Directors will need to be able to demonstrate their actions were honestly intended and not fraudulent.

“Not only could those found to be in breach of the rules be disqualified but they might also face civil action to recover any sums paid to them by their companies.”

 

Posted in Forensic, The Forensic Blog.