7 out of every 20 UK company directors struck off in 2022 were guilty of abusing the Government’s Covid-19 loan or job support schemes, shocking statistics reveal.
Still, many individuals and smaller companies may never be pursued as investigators claim their focus is larger, organised crime groups. Lots of company directors were accused of transferring money into their personal accounts.
It’s worth noting that a director’s loan is a legal practise allowing a director to borrow money from their company. However, some directors have clearly abused this practice to gain ‘free money’ without realising the consequences that await them.
Covid-19 loan abuse
It could also be argued that banks and the Government have been moving the goalposts to suit themselves. The criteria was pretty relaxed when loans were first introduced at the start of the Covid-19 lockdowns.
Business owners received money into their accounts within a few hours of submitting an application. It was scarily easy and inevitable that some would take advantage of the situation.
Directors of dormant companies were suddenly applying for loans even though their companies hadn’t been active for years. Of course, easy access to large sums (up to £50,000) is enticing in a time of financial strain and uncertainty.
The Insolvency Service has become the Government’s main tool to pursue fraudsters because other law enforcement agencies have limited resources.
However, a loophole in the rules meant that a director could avoid paying debts to customers and creditors simply by:
- Collapsing their company
- Immediately setting up nearly-identical businesses
New powers allow the Government to investigate directors without a formal insolvency process. For example, where a director has abused the dissolution process and walked away without paying the company’s debts. Directors can face sanctions including:
- Being disqualified as a company director for up to 15 years
- Prosecution (which we have already seen happen within the last six months)
It begs the question: didn’t these people take a minute to consider the potential consequences of taking a Government loan? Or was the prospect of thousands landing in their account too blinding? Either way, the Government and Insolvency Service certainly do not take abuse or misfeasance lightly.
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