Taxpayers could be forced to “foot the bill” for billions of pounds in business support as the UK finally emerges from the Covid-19 pandemic, according to two leading professional advisers.
The UK government has issued billions of pounds in loans since the onset of the coronavirus, through various financial support programs including the Bounce Back Loan Scheme (BBLS) and the Coronavirus Business Interruption Loan Scheme (CBILS).
BBLS, which provides business loans of up to Â£ 50,000 interest-free for the first 12 months and is by far the largest lending program in place during the pandemic, has been dogged by claims that a minority of borrowers would have fraudulently obtained part of this financial support.
Peter Brewer, partner in the commercial litigation team at the law firm Clarke Willmott LLP, and Emma Thompson, associate director, restructuring and turnaround services at Smith & Williamson, which is part of the leading wealth management and professional services Tilney Smith & Williamson, say there is “an urgent need for clarity” from government and banks on how fraudulent loans will be recovered.
âAround the same time last year, banks were working seven days a week to support their customers, under considerable pressure from the government to do something to help, in many cases lending against proposals they would not normally lend against. “, said Peter Brewer.
âThe Treasury’s intentions with BBLS and CBILS – to provide easy and quick liquidity to businesses – were honorable. However, due to the speed with which the schemes were launched and the loans made, due diligence was limited, especially for bounce loans, so they were susceptible to fraud.
âThere are huge sums of money at stake and the banks already consider that part of this money will not be recoverable.
âWhen the banks are unable to recover BBLS loans, the government and ultimately the taxpayer have guaranteed that they will pay back the banks. But the crucial question is: who foots the bill for pursuing the collection of loans that have been taken out fraudulently?
Emma Thompson says that when a company cannot repay its debts, it normally enters insolvency proceedings and it is up to the official receiver or designated insolvency practitioner to investigate the conduct of the directors.
“However, there is a cost in taking steps to recover these funds”, she says.
“If there are no more assets left in a business to provide these funds, will the government provide a fund to seek collection of any fraudulent loans from directors personally or could they ‘get away’?
âThe number of inactive or ‘dormant’ businesses that have obtained money from loans is particularly problematic.
âIf these dormant companies with no assets are used to secure loans, while the insolvency department has new powers to disqualify directors of dormant companies, there may not be funds available to carry out. well an investigation of potential assets that could have been placed out of creditors. personally reach or prosecute the directors.
âAs loans begin to be repayable, it is likely that those obtained fraudulently will be discovered because they will not be repaid. The more time passes, the more difficult it becomes to recover funds – the insolvency profession now needs clarity on how these can be prosecuted. “