Lenders Expect Wave of Disputes on Coronavirus Debt

Published 24 June 2020

A recent article in The Times looks at the anticipated volume of disputes expected in relation to repayments of Government-guaranteed loans during the Coronavirus lockdown. Read a summary of the article below, or view it in full here.

Treasury figures show that more than 910,000 businesses in the UK have taken on £38.2 billion of loans through Government-backed schemes since mid-March. Now financial regulators are anticipating an influx of disputes between businesses and banks when lenders begin to claim loan repayments or interest.

The article reports that a recent survey of small and medium sized businesses found that over 40% did not expect to pay the money back. This was either because they could not afford to or because they thought that they would not be pursued for it. While the government has guaranteed between 80 and 100% of the loans, they are being made by commercial banks, which are required eventually to recoup all the money and interest.

First interest payments on loans of up to £50,000 to the small companies are due a year after they were made (May 2021). For larger companies, the terms for Coronavirus business interruption loans for vary but with interest to falling due in the second year.

The Financial Ombudsman Service and the Business Banking Resolution Service have reportedly been building up capacity to ensure that they can handle the volume of complaints expected from business borrowers being pursued to repay the money.

The Business Banking Resolution Service, a not-for-profit organisation funded by the banks and set up only last year, is due to rule on complaints from business borrowers with turnover of more than £6.5 million. The Financial Ombudsman Service will many any complaints from smaller companies.

The report further speculates that while the Treasury likely have to compensate the banks for loans that go sour, the Treasury has emphasised that borrowers will be liable for repaying 100% of the loan plus interest. This may lead to banks forcing businesses that default into administration to recover debts.

Jonathan Jackson, Associate Director and head of Disputes and Litigation at MKB Law, comments: “Our team has significant experience acting for borrowers in disputes with banks and in financial services litigation ranging from damages claims for breach of contract to emergency injunctions. Should you require any assistance please do not hesitate to contact myself at MKB Law.”

Should you require any further information on asset protection, business or personal, please contact the Financial Disputes team at MKB Law.

This article is for general guidance only and should not be regarded as a substitute for professional legal advice.

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