Rise in Prosecutions of Company Directors as Government tackles Covid-related fraud
16 December 2021
Insolvency & Debt
A significant rise in the criminal prosecutions of company directors highlights that the Insolvency Service is cracking down when it comes to pursuing cases of fraudulent activity in relation to Covid support schemes. Whilst usually the implications for a director committed to wrongdoing would be limited to disqualification proceedings, a rising number of company directors in the UK have found themselves facing criminal prosecution as a result of Insolvency Service action.
In response to the economic crisis caused by COVID-19, the Government implemented a policy programme, said to exceed £150 billion, which introduced initiatives including Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS), intended to provide support to businesses. However, time pressures and the volume of demand forced banks and public bodies to dilute their typical pre-pandemic due diligence procedures which consequently left them susceptible to fraud. Recent evidence published found that there has been a 205 percent rise in the number of directors facing prosecution with 122 company directors and business owners having been convicted of fraudulent activity during the year up to September 2021- a significant rise from 40 during the previous 12 months.
The National Audit Office has reported that potentially 60 percent of all CBILS and BBLS claims could be fraudulent or made by default and as a result, the number of prosecutions of company directors is expected to grow exponentially as the Government and Insolvency Service have demonstrated an increasingly rigid and hard-line approach in response to the fraudulent claims of directors in relation to Government-backed schemes.
What is more, new legislation, currently making its way through the final stages of the legislative process, will likely add to the growing number of director prosecutions. If implemented, the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill will give the Insolvency Service extensive authority to investigate and disqualify directors of dissolved companies who have previously fraudulently claimed COVID support loans. The Legislation is intended to have a retrospective effect which allows for an application for a disqualification order up to 3 years after a company has been dissolved, therefore enabling both the Secretary of State and the Insolvency Service to pursue directors who inappropriately applied for or misused BBLS and CBILS.
It is critical to be aware of the consequences which may still await if a company is dissolved, or if a director resigns from office. Companies and their directors are now witnessing first-hand the current focus and attention on COVID support grant claims as they come under greater scrutiny under audits upon completing their corporation tax returns. As all the signals from the Insolvency Service indicate an increasingly hard-line approach to covid related fraud, directors should take note that it is of the utmost importance that their business maintains robust documentation and evidence to support their claim and to mitigate against any future charges. With an expected rise in companies dissolving as a result of the pandemic, directors should constantly remain aware of their duties particularly in circumstances where a company has become insolvent and take appropriate advice.
If you need assistance on any of the above please do not hesitate to contact our Insolvency & Debt team to discuss.