Insolvency Service uses new UK powers to ban Covid loan scammers
The Insolvency Service has used new powers for the first time against administrators who dissolve businesses to avoid debt as it steps up action against fraud in government-backed Covid-19 emergency loan schemes ‘State.
Last year ministers introduced new legislation which gave the Insolvency Service the power to investigate and punish administrators who abused the system to evade their creditors.
A loophole in the rules meant administrators could simply go bankrupt and set up nearly identical businesses to avoid paying their debts, including to customers and creditors such as HM Revenue & Customs.
Officials said the new legislation was proving particularly useful in tracking down fraudsters who exploited bulk checks around government pandemic loans.
Business Secretary Lord Callanan said the Insolvency Service had used its powers for the first time in recent weeks to bar three directors. The government had provided “unprecedented support to businesses to help them through the pandemic, but unfortunately a minority of people have abused this support for personal gain.
“We have been clear that we will not tolerate those who seek to defraud the taxpayer,” he said. The three were disqualified for “dissolving their companies to avoid repaying their rebound loans”, he added.
More than 1.4 million small businesses have taken out these loans to help them survive the closures, with up to £50,000 offered interest-free for a year. The government has provided banks with full guarantees on around £46bn of these emergency loans, but the scheme has been easily exploited by fraudsters due to few eligibility checks.
The Insolvency Service has become the government’s main tool for prosecuting fraudsters given the lack of resources of other law enforcement agencies to hunt the large number of small-scale abuses of antitrust programs. coronavirus.
The government body disqualified at least 162 directors between March 2021 and May 2022 following allegations that they abused Covid-19 business support schemes.
Its mandate was previously limited to formal insolvency proceedings such as compulsory liquidation of a company, administration or liquidation.
The new powers allow the government body to investigate directors without formal insolvency proceedings, for example where a director has abused the dissolution process and failed to pay company debts.
Directors can face penalties, including being disqualified as corporate directors for up to 15 years or, in the most serious cases, prosecution.
The first administrators to be banned using the new powers include a plumber who received a 10-year ban for a fraudulent bounce loan application that overstated his turnover. Another manager was banned for 12 years after taking out a rebound loan when his business went out of business at the end of 2019. The pair were found to have spent almost all the money they borrowed on personal.