It is estimated that around £22bn has been paid out by the government through the Bounce Back Loan Scheme (BBLS). Research from the accountancy firm Mazars has shown that in the first quarter of 2021 40,000 firms were ‘struck off’. This has led many to fear that thousands of the companies stopped trading to avoid repaying back these government loans.
COVID-19 Fraud | Rosenblatt’s Financial Crime Team
As well as Furlough support, during the pandemic companies were also able to claim money from the Coronavirus Business Interruption Loan Scheme (CBILS) and the BBLS, both of which were aimed at small companies. Strike offs from Companies House increased to 39,601 in the first three months in 2021 compared to just 4,695 in the same period in 2020, a rise of 743%. This staggering increase supports fears of a wave of CBILS and BBLS loan fraud.
Mazars’ Director of Restructuring Services Michael Pallott noted that, “many of these loans will have gone to legitimate businesses who have not survived the last year. When it comes to those who were less honest, however, the task of pursuing bad debtors who never intended to pay these loans back will be costly and time-consuming without the right tools. Even though some level of fraud was anticipated with CBILS and BBLS, these strike-off numbers suggest that the worst-case scenario might be in play for some lenders.”
The pressure that the government faced to hand out these loans meant that many banks did not carry out standard checks before granting the applications. The BBLS is believed to be the most vulnerable scheme, which provided up to £50,000 to small firms with most of the estimated £22bn going to micro businesses with fewer than 10 employees. Although the government has pledged to guarantee almost all of the value of the pandemic-related loans (80% of all CBILS loans and 100% of BBLS lending), lenders are expected to exhaust all their options of recovery before turning to the Treasury for compensation.
As discussed in further detail in our previous article, in the March 2021 budget the Chancellor, Rishi Sunak announced that £100m would be used to fund a HM Revenue & Customs taskforce. This Taxpayer Protection Taskforce has been introduced to tackle fraud linked to COVID-19 support measures. The government has also proposed enhancing the powers of the Insolvency Service so that it can investigate and disqualify the directors of dissolved companies. The Ratings (Coronavirus) and Directors Qualification (Dissolved Companies) Bill is scheduled for its second reading in the House of Commons soon and is expected to become law by the end of the summer.
Rosenblatt can help
Rosenblatt has a wealth of experience in criminal law and is uniquely placed to support client’s crime needs during these unprecedented times, consistently ensuring a familiarity with the ever-changing Government guidance on COVID-19.
https://www.rosenblatt-law.co.uk/services/financial-crime/#financial-crime
