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Covid 19 Fraud and Insolvency Service Investigations

Posted by: Gherson White-Collar Crime

The insolvency service gets extra powers to investigate COVID fraud

Companies that abuse Government COVID-19 loan related schemes through fraud will now face petitioning for wind up to the Courts from the Insolvency Service. This is in addition to other measures being imposed, such as Director disqualifications.Covid 19 Fraud and Insolvency Service Investigations

This is the clear message from the Insolvency Service’s 22 June 2021 press release in which it announces that since February 2021 the Insolvency Service has successfully petitioned the Courts to wind up five companies that have been involved in abusing COVID-19 government loans. These loans were introduced to help businesses during the pandemic, and there is reported abuse of both the Bounce Back Loan and the Coronavirus Business Interruption Loan.

An example is given of a company director disqualification for 12 years after fraudulently claiming through the Bounce Back Loan Scheme a loan of £50,000 and transferring the full amount from the company to himself days before the company went into administration. The individual forged a document to convince his bank that the winding up order had been revoked, allowing him to transfer an amount, including £50,000 bounce back loan, out of the account.

Two out of the five companies secured Bounce Back Loans and at least one of these was obtained on the basis of fraudulent misrepresentations. It is also reported that a company in Glasgow secured two Coronavirus Interruption Loans, again, on the basis of fraudulent misrepresentation.

The Chief Investigator of the Insolvency Service has also issued a plea urging “anyone who suspects a company who has been involved in this kind of abuse, or has information about directors fraudulently obtaining Covid business support, to alert us immediately”.

As the Insolvency service flexes its muscles following the action taken against businesses as outlined in the press release, its grip is likely to become tighter if new legislation comes into force.

At present, when a company is liquidated, a director’s conduct in the 3 years preceding liquidation comes under scrutiny. If deemed to have engaged in ‘unfit conduct’, then legal action can be taken for disqualification for a period between 2-15 years. Where monies are lost as a result of the director’s actions, then personal liability can accrue. If disqualification is ordered, then breach at your peril, as criminal sanctions can follow.

In order for this process to take place, however, proceedings must be instigated whilst the director is in office, and as the company is being liquidated. The company therefore remains on the register of companies. If, however, there is an application to dissolve a company, which manages to pass through the system without scrutiny, then the options for the insolvency service are limited. In order to take action, there would need to be cumbersome and costly court proceedings to reinstate the company, and then the liquidation process can be applied.

In order to bridge a perceived legislative gap in the power to disqualify directors of companies which have been dissolved, the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill is currently making its passage through Parliament.  In this bill, there is a proposed extension to section 6 of the Company Directors Disqualification Act 1996 Act, to include former directors of insolvent companies, as well as former directors of dissolved companies.

If the legislation passes, then the actions of directors who may have dissolved a company in order to avoid investigation as part of the liquidation procedure, can now come under the spotlight, and the full powers of the Act can be brought to bear.

With an anticipated rise in companies dissolving as a result of the pandemic, it is important to be aware of the pitfalls which may still await if a company is dissolved, or if a director resigns office. 

If there are concerns over potential liability, then Gherson White-collar team can provide confidential expert advice. Please do not hesitate to contact us for advice, send us an e-mail, or alternatively, follow us on TwitterFacebook, or LinkedIn to stay-up-to-date.

 

The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Gherson accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please don’t hesitate to contact Gherson. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Gherson.

©Gherson 2021

 

Neil Williams 

  Neil Williams

  Solicitor in our White Collar Crime Defence Team

 

Thomas Cattee 

  Thomas Cattee

  Solicitor in our White Collar Crime Defence Team

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