A little over a year ago, the Chancellor COVID loans (fixed rate Bounce Back Loans and variable interest Covid Business Interruption Business Loans) promised competitive interest rates and no repayments for the first 12 months.
The first of the debts are now due to receive at least interest repayments, but more likely also capital repayments.
Whilst many businesses will have used the money wisely and have made provision to meet their obligations, there are rumours of fraudulent applications, where money has been borrowed with no intent from the borrower to repay, and some businesses will still be struggling and will find honouring their obligations too challenging.
The Business Banking Resolution Service suggest that over 40 per cent of businesses that have taken out any government-guaranteed emergency coronavirus loan have no intention of repaying them – either because they do not expect to repay their Bounce Back Loan, or because they do not believe that the government will pursue the debt.
They may be wrong! The government have made it clear (in the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill) that the Insolvency Service will be given stronger powers to investigate and take action against directors of companies that have abused the COVID support loan schemes.
Not only is the Insolvency Service getting these new powers, the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill are retrospective in their application, meaning Company Directors will be held to account to rules which did not apply at the time they acted.
These retrospective powers enable the Insolvency Service to pursue Company Directors who have wound up companies that borrowed from one of the COVID support loan schemes.
Acting on behalf of the Business Secretary, the Insolvency Service’s powers will be extended to disqualifying individuals from acting as a company director for up to 15 years.
It is clear to us that the government intends to use all of its powers (new and old) to ensure that their guarantee to the lending financial institutions is only called upon in extreme circumstances and that in all other circumstances borrowing companies and their directors will be pursued to ensure recoveries are made.
Business owners struggling with COVID support debt should take appropriate advice at their earliest possible opportunity.