Yesterday it was announced that £5.8 billion was lost through furlough and Bounce Back Loan fraud. Of that, to date only £500 million had been recovered, and although projections suggest a further £1 billion could be recovered by the end of 2023, the remaining £4.3 billion could be written off.
In November 2020 I was asked by a national newspaper to comment about the National Audit Office’s report into the Bounce Back Loans.
Whilst the doomsday predictions have not quite been reached, now would be a good time to reflect on how the Government reached this point, and the enforcement activity undertaken by the banks to recover these losses.
The National Audit Office was critical that no credit checks were used in the Bounce Back Loan Scheme – as a consequence unviable businesses were given access to the loans. It was predicted at the time that as much as £26 billion could be lost to fraud. As I explained then, the Bounce Back Loan Scheme was brought in too quickly for a fraud prevention strategy to be implemented, giving a window where fraudulent claims would go unmonitored and banks were expected to use their own enforcement powers to monitor applications and close down those businesses they suspected of fraud. It was only in September 2020 banks started to get to grips with the backlog. We now know that 150,000 ineligible claims were blocked.
Not many of these alleged fraudsters are heading to Court. The Magistrates’ Court backlog currently stands at 372,654 cases with another 58,728 cases in the Crown Court system.
So how are these cases being enforced, and what is happening to the perpetrators?
The answer is that they are likely to be subject to enforcement action by the banks, served with default notices making the debts fall due immediately. Many affected businesses will negotiate repayment terms. Others will be forced into liquidation. As I warned previously, company directors will have Cifas fraud markers loaded against them meaning they will be blocked from obtaining credit for 6 years. Those businesses that go into liquidation may also find that their directors are blacklisted from obtaining credit on the basis of losses caused to the banks, or more accurately the British Business Bank which underwrites the debts due to the banks.
However, there will be many hard luck stories. The banks were given little guidance on how to interpret the rules set out by the British Business Bank. As a consequence I have seen some dubious decision making when default notices and Cifas markers have been issued on the basis of scant evidence or poor judgement by the banks investigators. I have seen reputations reduced to tatters and otherwise strong businesses pushed into oblivion. Challenging such decisions is a difficult, technical and specialist area of law.
If you are affected please contact Jeremy Asher.