A total of 1.5 million loans worth £47bn were issued through the initiative, after about a quarter of UK businesses applied.
However, in a recent report, the National Audit Office said the government estimated more than a third of loans, worth £17bn, may never be repaid due to both fraudulent activity and legitimate borrowers defaulting.
The banks bear a great deal of responsibility in my view as they have made available loans without reference to the turnover of the company seeking the loan. A restriction of 25% of turnover was in place but this restriction has not been used as an important safeguard. Loans have been provided to companies with no turnover or limited turnover.
What are the duties of a Company Director?
All directors have a duty to ensure their companies maintain proper accounting records. The use of a Bounce Back Loan must be for the benefit of the business and never for personal use. As long as the director has fulfilled his statutory duty to protect company creditors such as HMRC and Banks and has diligently followed ethical business practices then there are not legal backlashes.
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What if a director did not use a bounce back loan for its intended use?
Failure to account for how a Bounce Back Loan was used, or using it for personal payments, can result in being disqualified as a director. If the company is liquidated and the liquidator ascertains that the director failed to protect the interest of the company creditors and did not fulfil his statutory responsibility, he can be made personally liable for the debt of the company. This will include being asked to personally repay the bounce back loan.
What does the low say?
On 5 February 2020 the Government published Briefing Paper No: 8802 entitled "Insolvency; joint and several liability notices for directors". Joint and Several Liability Notices (“JSLs”), will make both companies and individuals (directors, shadow directors and “others”), jointly and severally liable for tax liabilities in insolvent companies as a consequence of evasion, avoidance or repeated non-payment of tax.
The Bounce Back Loan should be repaid. Unless the company is unable to do so due to genuine pressures beyond the control of the company director, every effort should be made by directors to meet the financial commitment of repaying the bounce back loan. The correct use of the loan together with the assistance that accountants can provide in helping to manage and maintain the company resources will enable diligent directors to succeed as we gradually learn to live with Covid.
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