Getting jumpy about bounce backs – Is a bounce back loan going to get you disqualified as a director?Posted: Feb 21, 2023

Can I be disqualified as a director over a Bounce Back Loan?

Let’s deal with the big questions first. In short, yes. If your company goes into liquidation, and you have an outstanding bounce back loan, then in some circumstances you could be potentially disqualified as a director for a number of years. In fact, Bounce Back Loans have featured in many cases recently. There are some examples of this happening on the Government news pages with some of them resulting in hefty disqualifications of 11 years. So, yes it can happen.

The bigger question though is around ‘why’ it could happen, more than ‘if’ it could happen. The chances of you being disqualified as a director are not about whether it is possible, they are about your conduct and use of the loan.

 

What could cause disqualification?

OK, so here is where it all gets a little less worrying. It is not uncommon for directors to sit on the boards of multiple businesses or want to start another company if the current one needs to go into liquidated. So, potentially being disqualified as a director could have some pretty serious repercussions. However, there is no automatic process and in fact, very little need to be concerned at all if you can answer ‘yes’ to the following question:

‘Did you obtain and/or use the bounce back loan funds correctly’?

If you did, then you probably have nothing to worry about in respect of being disqualified because of the bounce back loan. There may still be other questions around your directorship and the insolvency of course, but that is a different set of questions.

 

What is the incorrect use of the BBL funds?

If you took out a BBL and didn’t use the loan for its intended purpose (essentially for keeping the business going during lockdowns) then there could be grounds for further investigation. If that investigation is undertaken and you did not use the funds correctly, that would be grounds for potential disqualification.

So first things first.

Things that would be considered unsuitable use would include:

·      Taking a lump sum out of the business and transferring it to a personal account

·      An associated increase in your salary or dividends that appears to be linked to the bounce back loan

·      Giving the money to someone else, for example, a family member

·      Buying personal assets with the money

·      Using the funds for inappropriate reasons

So as long as you didn’t use take the money yourself, suddenly increase your salary by a huge amount, give it to your mum or surprisingly find a need for the company to own a brand new Tesla, you’ll probably not be disqualified for misusing the bounce back loan.

 

Secondly, there is the question of the Company’s circumstances when the loan was obtained. Again, this is reasonably straightforward as there were so few rules at the time. The main rules were.

·      You could only apply for a loan up to 25% of your turnover with a minimum loan of £2,000 and a maximum loan of £50,000.

·      You were a trading business as at 1 March 2020.

·      Your business was not in ‘a business in difficulty’ as at 31 December 2019.

·      More than 50% of the business’s income was from trading income.

·      There were other rules in respect of groups and types of businesses which couldn’t apply but these are rare. 

These have been the main area of disqualification to date properly because of the fact there were so few rules that it is easy to prove when they have been broken.

 

If I am investigated, would it just be disqualification?

Well, that would depend. We need to remember that the BBLs issued were, to state the obvious, a loan. That means that the business will be liable to pay them back if possible. So, they needed to be obtained legally and honestly. The chances are that if you are investigated you will have more things to worry about than being disqualified. 

There is a lot of concern surrounding how many loans were fraudulently obtained and you have probably seen the news reporting some very worrying cases. The BBC recently reported the story of a Director who filed to close his company within 24 hours of receiving £25,000 and in one of the cases on the .gov pages we mentioned at the start of this blog, a director who was disqualified for 11 years received a £50,000 loan based on a turnover of £287,500. In fact, his turnover had been just over £2,500.

We are beginning to see examples of cases where both imprisonment and compensation orders have been obtained however as the above examples show these tend to be in extreme cases.

When you see cases such as these it does tend to give a little more perspective on things.

At the end of the day, the situation around bounce back loans is the same as it has always been. Despite what you read in the press nobody is rounding up directors to march them off to drumhead courts. As long as you obtained your loan legally, told the truth on your application, used the money correctly and have gone out of business for legitimate reasons, you probably have very little to be too concerned about in relation to BBLs.

If you think you are looking at insolvency for your business, we have a section of the site set aside to help Directors understand where they stand. We are here to help, and you can book your free initial consultation with us by clicking here.

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