Recent guidance issued by the Insolvency Service has asked Insolvency Practitioners as part of their reporting procedures to look into whether any Government support schemes have been abused by the insolvent company or the directors. Examples of the abuse include;
Directors using Bounce Back Loan funds for their personal benefit or paying off their director’s loan account
Claiming furlough monies for employees still working, contrary to the terms and conditions
Providing false information to obtain financial assistance
Where a company enters into an insolvency process, the Insolvency Service are likely to specifically target those directors who it perceives have abused the Government support schemes for disqualification as they will be easy targets. This may mean that the directors are disqualified from acting as directors for 2 – 15 years.
When a director is disqualified, the insolvency Service also have the power to seek a compensation order against the directors personally for certain debts.
In addition, the Insolvency Service are also putting pressure on Insolvency Practitioners to investigate whether these support schemes have been abused and try to bring claims against directors.
If you have any clients who have used Bounce Back Loans or the furlough scheme and their businesses are in financial difficulties, it is really important to have an open discussion with the Insolvency Practitioner at the initial contact to establish what the potential ramifications will be on the director.