New powers used by Insolvency service to ban covid-loan abusers

new powers for insolvency service

The UK’s Insolvency Service has utilised its new powers for the first time against directors that dissolve businesses to avoid the payment of its debts. The move is seen as the Insolvency Service ramping up its actions against deliberate fraud for government backed emergency Covid-19 loan schemes.

Last year, government ministers introduced new legislations that gave the Insolvency Service powers to investigate and punish directors that abused the system to escape their creditors. A loophole in enterprise laws meant that directors could simply collapse their companies and set up nearly identical businesses to avoid paying their debts. These could include unpaid debts to suppliers, customers and HM Revenue & Customs.

Officials said the new legislation was proving especially useful in chasing down fraudsters who exploited the loose checks around government pandemic loans. Business minister Lord Callanan commented that the Insolvency Service had used its powers for the first time to ban three rogue directors.

The government had delivered “unprecedented support to businesses to help them through the pandemic, but unfortunately a minority of people abused this support. “We have been clear that we will not tolerate those who seek to defraud the taxpayer,” he said. The three were disqualified for “dissolving their companies to avoid repaying their bounceback loans”, he added.

More than 1.4 million small Businesses took out these loans to help them survive the pandemic lock-downs. Small Businesses were offered up to £50,000 interest free for a year.

The government provided full guarantees for banks on about £46 Billion of these emergency loans, but the scheme was openly abused by fraudsters due to minimal checks on eligibility.

he Insolvency Service has become the main tool for the government to pursue fraudsters given the lack of resources at other law enforcement agencies to chase the large amount of smaller scale abuse of coronavirus schemes. The government body disqualified at least 162 directors between March 2021 and May 2022 following allegations they abused Covid-19 support programmes for businesses.

Its remit was previously limited to formal insolvency processes such as court-led wind-up of a company, administration or liquidation. The new powers allow the Insolvency service to investigate directors without a formal insolvency process. This can occur where a director has sought to ‘play’ the dissolution process and walk away from a company with unpaid debts and business late payments.

Directors can face sanctions including being disqualified as a company director for up to 15 years. Clear abuse of the process in serious cases can also end in prosecution. The first directors to be banned using the new powers include a plumber who received a 10 year ban for a fraudulent bounceback loan application having overstated his turnover.

Another director was banned for 12 years after gaining a bounceback loan despite his company having ceased trading at the end of 2019. Both men were found to have spent almost all the money they had borrowed on personal use.


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