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Expert Analysis: Bounce Back Loan Fraud and Rogue Directors


It is estimated that of the £47 billion worth of Bounce Back Loans provided by the government, £4.9 billion is likely to be lost to fraud. Mark Rostron and Kate Heaney from the Insolvency Team at Darwin Gray look at what these loans mean.

What is a Bounce Back Loan?

At the start of the Covid-19 Pandemic, the UK Government introduced a lifeline to small businesses in the form of the Bounce Back Loan scheme. Businesses were able to borrow up to £50,000, to be repaid over a period of 6 years. A business could only borrow up to 25% of its turnover, but notably, previous years’ accounts and trading records did not have to be relied upon.

Despite the scheme’s intentions, the quick and immediate access to cash was a target for a minority of directors with hopes of using the Loans for their own personal benefit.

How have the Bounce Back Loans been misused?

Due diligence checks were relaxed for the Bounce Back Loans scheme, with businesses asked to self-declare their eligibility. This inevitably left the scheme open to abuse, causing the taxpayer to lose billions of pounds. A minority of directors have been said to spend their Bounce Back Loans on luxury items like new cars, extravagant holidays, sending lump sums to themselves and family members, or to pay off their personal mortgages or put deposits down on houses, rather than using them to support their businesses.

A key rule set by the government was that the Bounce Back Loans were to be used for the economic benefit of businesses. But it seems that many individuals used Bounce Back Loans for anything but. In a recent article by The Times, some examples of unauthorised use of the Bounce Back Loans scheme included:

  • A businessman breached scheme rules by securing more than ten pandemic loans for companies in the same corporate group.
  • A sandwich shop owner received a £35,000 loan for his business before using it to fund the refurbishment of his garden, gambling losses and a new business that went bust within six months.
  • A soft drink company owner inflated his firm’s turnover by 100 times on his application to get a maximum £50,000 loan.

What’s being done about bounce back loan fraud?

The government has introduced new measures against those who fraudulently misused their Bounce Back Loans which includes prosecution and disqualification of directors. The new measures also extend the Insolvency Service’s powers to investigate and disqualify company directors who abuse their powers and dissolve companies to avoid paying back their Bounce Back Loans.

A director found guilty of fraudulently using a Bounce Back Loan could be held personally liable for repaying the outstanding balance due on the loan, which could be anywhere up to £50,000. The director may also face director disqualification and a heavy fine. The measures aim to deter that minority of directors who wish to escape their responsibilities and debts.

July 2022 saw the first four directors disqualified under the Insolvency Service’s new powers to tackle directors from dissolving companies and attempting to avoid their statutory responsibilities.

What we can do to help?

If you have been appointed liquidator of a company and you suspect the director has misused a bounce back loan, we can assist you with recovery action. This may also include pursuing the director for misfeasance and/or breach of their fiduciary duties. For further help and advice, contact Darwin Gray’s insolvency team for a free initial chat:

Mark Rostron on 02920 829 129 or at [email protected]

Kate Heaney on 02920 829 121 or at [email protected]