According to the Insolvency Service, many more directors face jail for fraudulently claiming Bounce Back Loans during the pandemic.
The first successful prosecution of a fraud case involving the Covid loans, where a director chose to dissolve a company to prevent repayment of debts, was of the director of a takeaway pizza business in Manchester.
Abdulrazag Zagroba was sentenced to two years in prison having applied for a bounce back loan of £20,000 in June 2020 without telling the bank that he had applied less than two weeks earlier to dissolve his business. In fact, by the time the loan was due to be repaid in June 2021, the company had already been dissolved.
Although it was clear from the terms and conditions that Bounce Back Loans were only to be used for business purposes, Zagroba admitted when questioned by Insolvency Service investigators that he had never intended to use the money for his business.
Instead, he arranged for friends to travel with around £14,000 in cash to give to his family abroad and used £6,000 to buy a car and insurance.
A spokesman for the Insolvency Service said that Covid loans were designed to support viable businesses during the pandemic.
However, in this case, Zagroba “cynically sought to exploit the Covid loan scheme and by dissolving his company, he intended to frustrate any attempt by the lender from taking action to recover the outstanding loan.”
Helen Gregory, Forensic Director at Milsted Langdon, said: “Thousands of businesses, quite legitimately took out Government-backed loans during the pandemic, but with HMRC identifying billions of pounds worth of fraudulent activity in relation to the loans and other financial support on offer the tax authority and its partner agencies, such as the Insolvency Service, are cracking down on the abusers of this critical support.
“The various Government departments are employing the expertise of forensic accountants and experts to uncover cases of fraud, but equally, many of those accused are engaging a forensic accountant to prove that their actions were legitimate.
“With hundreds more cases like this one likely to emerge in the next few years, it is important that both sides have suitable representation to present the facts appropriately.”
Source(s): Gov.UK