DIRECTORS' DISQUALIFICATION

Last month, the Insolvency Service announced that 80 per cent more company directors were disqualified for abusing Covid loan schemes in 2023-24 than in the previous year.

The Covid Bounce Back Loan Scheme (BBLS) was introduced at the start of the pandemic in 2020. The scheme helped small and medium-sized businesses borrow between £2,000 and £50,000 at a low interest rate, guaranteed by the Government.

Under the terms of the loan, businesses were entitled to a single loan of up to 25 per cent of their turnover under the scheme and applicants could only use the loans for the economic benefit of the business and not for personal purposes.  Instead, a number of company directors were found to have abused the scheme by either inflating the turnover of their businesses or taking the money and then using the funds for their own personal benefit.  

There has been plenty of commentary on the lack of due diligence undertaken at the point when the funds were originally paid out and as a result, resources are now having to be expended by the Insolvency Service to penalise those who have abused the process and made fraudulent claims.

The latest statistics show that in the year 2023 / 2024, 831 individuals were disqualified and were banned on average for more than 10 years (up from 459 in 2022 / 2023).  The Insolvency Service advised that they were taking “robust action” to clamp down on directors who abused Covid support schemes and took from the public purse during the worst global pandemic in recent memory.  Specialist teams were established in the Insolvency Service to pursue these rogue individuals and it can be assumed that in the year 2024 / 2025 there will be a further increase in the numbers of disqualified directors.

One of the objectives of the Insolvency Service is to “remove rogue company directors from the corporate arena.”  However, despite their best efforts, the Insolvency Service has limited resources to pursue all those rogue directors and in any event many of those disqualified are unlikely to have the intention of ever being a director again due to being too stressed and troubled from losing their business, whilst other individuals will remain undeterred and who will find ways round the disqualification by operating companies using third parties to run companies from a distance.

Whilst these fraudulent acts ought not go unpunished, consideration needs to be given as to whether disqualification alone is an effective tool to deter those directors tempted to claim third party funding in the future.  

Author: Gareth Price

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