Although we would all like to forget, put behind and move on from the impact and devastation caused by the COVID-19 pandemic ('C19'), unfortunately for many, that is impossible. Public members must deal with and/or be subject to commercial, reputational and financial sanctions by government agencies. 

As a director, you are not alone if facing the consequences of Bounce-Back Loans (BBLs) taken during the pandemic. Many are now grappling with the risk of disqualification and significant financial penalties.

This short article explores the link between Bounce Back Loans, Director Disqualification and Compensation Orders.

Understanding Bounce Back Loans (BBLs)

During C19, the various nationwide lockdowns and the inability of businesses to trade as usual had a monumental impact on the country. This resulted in thousands of businesses having no option but to permanently close their doors and/or seek professional insolvency advice.

To protect the commercial sector, the government created 'the Bounce Back Loan Scheme', designed to enable businesses to access funds swiftly without going through the usual prolonged due diligence checks and substantial paperwork.

The BBL Application Process

This article does not intend to discuss the qualifying criteria that an applicant company must meet to apply for a BBL. However, it should be noted that the government streamlined the application process (often, in some cases, the application consists of only a couple of pages), with a company being able to apply for and receive a maximum of up to £50,000.00.

The central government stopped the scheme on 31 March 2021, preventing companies from applying for a BBL. Directors faced significant challenges when applying for BBLs, including time pressures and a lack of guidance.

Potential Issues with BBL Applications

Attributable to the government, the banks and the world at large being largely unprepared for the impact of C19, relevant safeguards were not put in place quickly enough to protect against potential errors by businesses whilst going through the BBL process. This resulted in many BBL Applications being misunderstood, unclear to the reader, completed incorrectly and/or the applicant being unable to obtain financial or legal advice from an accountant or solicitor in relation to the completion of the BBL Application attributable to the nationwide lockdowns and/or risk to life.

Many directors acted in good faith but are now facing consequences due to the unprecedented nature of the situation. This has resulted in various BBL Applications being completed incorrectly, recklessly or unknowingly inaccurately. This resulted in companies receiving BBL Applications being approved when they should not have been, companies receiving BBL funds when they did not meet the criteria, or companies receiving BBL funds over, above, and in excess of the sums they should have received.

On this basis and four years after C19, many directors are now being investigated and/or penalised for decisions they made honestly four years earlier when completing the BBL Application.

Investigations by the Secretary of State (SOS)

Whether a company went into liquidation or administration or was wound up in 2020 or 2024, the SOS (or its investigative branch, the Insolvency Service) will usually investigate any companies (including their respective officers) receiving any BBL funds. If your company is under investigation by the SOS, it's crucial to understand the potential implications for you as a director.

The SOS's investigation will not be limited to this area. The SOS will generally investigate the company's officers' conduct during their directorship, usually two years before the company ceases trading. The purpose of the SOS is to investigate the background and evaluate whether the facts give rise to Director Disqualification Proceedings and/or a Compensation Order being sought against the director(s) of the company. However, in relation to any BBL funds received, the SOS will usually begin their investigation by exploring the following matters:

  • Review the BBL Application, who completed it, and whether it was completed correctly.
  • Determining whether the company met the criteria to apply for a BBL in the first place.
  • Whether the company received the correct sum (subject to their circumstances) of the BBL applied for or whether it received an overpayment of BBL that it should not have received.
  • Were the BBL funds used for genuine, business, or commercial reasons to benefit the company? – A strict provision of the BBL Scheme was that using the BBL funds was not permitted for personal and non-related business reasons.

The above is not an exhaustive list but indicates some areas the SOS will investigate when considering BBL matters in a company.

Protecting Your Interests: Director Disqualification and Compensation Orders

Once the SOS has completed its investigation, it will determine whether the facts give rise to Director Disqualification proceedings against a director(s). A director can be banned for a minimum of 2 years up to a maximum of 15 years.

The SOS will also evaluate whether the facts support a Compensation Order ('CO') being sought against the director(s). A CO is a financial mechanism and power afforded to the SOS to disqualify a director and seek a financial contribution towards paying the company's creditors.

Attributable to the SOS receiving pressure from central government and the banks, COs are much on the rise, with the SOS regularly seeking financial sums from directors, usually (but not limited) up to the sum of £50,000.00. For the sake of clarity, if the SOS wishes to disqualify you, it does not mean that a CO will also follow. A director can be disqualified without the SOS pursuing a CO against you. Don't let a Bounce Back Loan jeopardise your future as a director. Seek professional advice to protect your interests.

You Are Not Alone: Seeking Professional Help

If you're a director who has received communication from the SOS or Insolvency Service, it's vital not to ignore or delay your response. Early and active engagement is key to setting a strong defence and protecting your reputation. This proactive approach will provide a framework to explain your position and convince the authorities that disqualification or a CO is not warranted.

At D & N Solicitors, we understand the complexities and challenges directors face in this situation. We appreciate your unique circumstances and are here to assist you in engaging with both the SOS and the Insolvency Service, defending your position and reputation, and avoiding a substantial CO against you. Trust in our experience and expertise to guide you through this process.

We have successfully defended numerous directors facing disqualification and compensation orders related to Bounce Back Loans. Our expertise and strategic approach have helped clients avoid or minimise penalties and protect their interests. Click here [page link insert] to read how we have helped many others in your situation and discover how we can assist you in navigating this complex legal landscape.

The key is to seek professional advice early to be aware of your legal obligations and options when dealing with the SOS. We at D & N Solicitors can, will, and regularly engage with directors when dealing with such matters.

Don't wait until it's too late. Contact D & N Solicitors today for expert guidance on navigating director disqualification and compensation orders. The most important thing to note is that you are not alone. If you are concerned about any matters in this article, please call D & N Solicitors. We will be happy to discuss your options, any concerns, and how best to move forward.