The Government is continuing with its hard line against Bounce Back Loan (BBL) fraud and misuse

The Government is continuing with its hard line against Bounce Back Loan (BBL) fraud and misuse

Suspended prison sentence and £10,000 repayment compensation order for businessman

In November 2023 we reported on a case where a Judge ordered the director of a gift company to repay £43,500 via a Compensation Order for a falsely obtained Bounce Back Loan (BBL). In this article, we look at a recent case where the outcome for a similar offence was a suspended prison sentence, as well as a £10,000 repayment compensation order for a self-employed construction contractor.

The Details of this case

Adam Lennard from East London pleaded guilty, following an Insolvency Service investigation, to inflating the turnover of his Property Maintenance Business to secure a Bounce Back Loan of £20,000. He claimed his business’s annual turnover was £80,000 when in fact it was under £50,000. He also admitted using the funds for his own personal use and having no intention of ever paying back the loan.

As a result, he was ordered to repay £10,000 of the loan within one week of the judgement and was also sentenced to eight months in prison, suspended for 15 months.

Julie Barnes, Chief Investigator at the Insolvency Service, said:

“Adam Lennard overstated the turnover for his business, used the funds for his own personal and family use and had no intention of ever paying the money back. He now has a criminal conviction as a consequence of his fraudulent actions.”

Bounce Back Loan Fraud is a serious offence

According to National Audit Office statistics, it is estimated that £4.9 billion worth of Bounce Back Loans was lost to fraud, so for all those companies who legitimately took out a BBL and are doing their best to make their repayments, often under the difficult circumstances of today’s financial climate, news like this, that those who abused the system are being caught and punished is some sort of comfort.

As Elaine Wilkins, director at our Bournemouth office says:

“I have come across many businesses who are in financial difficulties and are working hard to pay back their legitimate Bounce Back Loans. Invariably, they take a degree of solace from news like this that those who have fraudulently drawn down a BBL and/or misused the funds are being punished for doing so.”

What happens if a Company is struggling to repay its BBL?

The Pay As You G0 (PAYG) scheme was introduced as part of the Winter Economy Plan and is designed to help companies who have started to repay their Bounce Back Loans but are having difficulty in meeting the monthly repayments. There are three main lifelines offered to companies through the PAYG scheme:

  • Bounce Back Loans can be extended from six years up to 10 years with the interest rate remaining fixed at 2.5%. Lengthening the term of the loan will make monthly repayments lower but you will pay more interest overall.
  • A six-month payment holiday can be taken meaning no repayments will be due during this time. This option can be taken once over the term of the loan.
  • Borrowers can opt to pay just the interest on their loan for a period of six months. This will lower the monthly repayment amount for those months. This option can be taken three times over the course of the loan.

Can Bounce Back Loans be written off?

Bounce Back Loans cannot be written off while a company is still active and trading, The only way a Bounce Back Loan will be written off is if the company becomes insolvent and subsequently enters liquidation (usually through a Creditors’ Voluntary Liquidation) and no evidence of a fraudulent application or misuse of the loan is uncovered by the Liquidator.

If any such abuse of the BBL system is uncovered, and directors are to avoid the possibility of compensation orders, director disqualification and even a criminal prosecution, they need to take formal advice, which will normally require the repayment of the BBL on terms to be agreed. We would strongly advise directors in such a position not to ‘put their heads in the sand’ but to seek advice early and to try to deal with the situation in an open and transparent way.

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