Universal Credit form with of a pile of unpaid utility-bills
How Companies and Directors are dealt with in Universal Credit
July 6, 2020
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Misuse of Bounce Back Loans

British business bank
1What is a Bounce Back Loan?
It was / is an easy to obtain loan from a lender backed by a guarantee from the government, rather than the major personal assets of the directors.
2How much can I claim?
Loan amount from £2,000 up to £50,000 or 25% of your annual turnover.
3What is/were the money to be used for?
‘To provide an economic benefit to the business, for example providing working capital, and not for personal purposes.’

‘There are no limits on the amount of the facility that can be used for refinancing.’

Source: British Business Bank.
4Can companies who were struggling pre-COVID-19 get a loan?
'If the business was a “business in difficulty” on 31 December 2019, then a loan under the Scheme is not permitted.'

Source: British Business Bank.
5How’s that defined?
‘A business is considered in difficulty if it met any one of the following criteria on 31 December 2019:
  • Individuals or companies that have entered into collective insolvency proceedings;
  • Limited companies which have accumulated losses greater than half of their share capital in their last annual accounts (this does not apply to SMEs less than 3 years old[7]);
  • Partnerships, limited partnerships or unlimited liability companies which have accumulated losses greater than half of their capital in their latest annual accounts (this does not apply to SMEs less than 3 years old);
  • Where the undertaking has received rescue aid and has not yet reimbursed the loan or terminated the guarantee, or has received restructuring aid and is still subject to a restructuring plan;
  • A company which is not an SME where, for each of the last two accounting years: i) your book debt to equity ratio has been greater than 7.5; and ii) your EBITDA interest coverage ratio has been below 1.0.’


  • Source: British Business Bank.
    6What do applicants have to certify?
    That they are eligible for the loan.

    The rumours…

    There are rumours going around of people buying personal assets, investing in property, paying dividends and paying down unsecured director loans.
    1What’s wrong with that?
    The money were obtained in reliance of a certification that the company was eligible for the loan, which includes using the money for the stated purpose in the loan application. And then applying it for the benefit of the company.
    2What if I don’t use the money for the stated purpose?
    If your company goes into any form of insolvency, the liquidator / administrator will investigate what you’ve used the money for – the IP has a duty to investigate the affairs of insolvent companies, report to the appropriate authorities and take legal action to bring in additional recoveries for the benefit of the creditors. If he / she considers you have misused the money, he will consider forcing you to reimburse the company using a variety of powers available to him under the Insolvency Act and elsewhere, including:
  • Misfeasance under the Insolvency Act and breach of duty under the Companies Act (eg a breach of your statutory duty to promote the success of the company)
  • Wrongful / fraudulent trading
  • Preference (eg if you pay down a directors’ loan account balance)
  • Fraud under the Fraud Act – directors cannot hide behind the corporate veil where they cause a company to commit a fraud
  • And a range of other potential avenues depending on the facts.

    But things have changed since I took out the loan…

    The BBL came with conditions attached. Sometimes things happen to make it difficult for those conditions to be fulfilled, but that does not give directors the ability to simply use the money as they like, they should take formal advice if they are put in that position, taking and following that advice before they spend the money. Failing to take timely advice from the right professional and simply using the money as you like will not be looked at kindly, ignorance is no excuse.

    Summary

    There’s no such thing as free money. Bounce Back Loans came with conditions attached. Directors who make misleading or fraudulent applications for BBLs will see themselves asked to personally repay the entire loan. As could directors who find the business’ circumstances changed and use the money for purposes it was not designated for – it’s vital these directors take appropriate legal and insolvency advice before they spend the money – ignorance is no excuse. Directors will see themselves having to repay BBLs taken out where the money has been used for alternative purposes other than those for which it was received even though they’ve given no personal guarantees. And that is guaranteed.