Director scrutiny over covid loans

Closing an insolvent business is a horrible experience but disqualification from being a director is even worse.

In a recent case in the North of England the director of a retail business was disqualified for 11 years after it was concluded that he had overstated his turnover when claiming a Covid Bounce Back loan.

The regulations state that eligibility for a loan was in doubt given that they should be for less than 25% of the previous year’s turnover.

It appeared that the business had already ceased trading the previous year but insolvency officials said he should have known that turnover had been insufficient to qualify for the loan, which was paid out in May 2020.

It also found that he had failed to provide sufficient records to establish what the funds were used for.

This situation emphasises the duties on directors to not only keep accurate and detailed financial records but also to ensure they comply with all their duties when applying for a Covid-related BBLS or CBILS loan or when a business is insolvent.

Any investigation of formal insolvencies will look closely at loan applications and the use of funds.

Disclosure and directors’ reports should cover the circumstances of any loan.

My Board Briefing on inoculating your board during coronavirus is helpful for directors in understanding their legal duties.

You can view it here: https://www.linkedin.com/pulse/directors-need-understand-duties-liabilities-whatever-tony-groom/

It is distressing enough to have to deal with closing down a business into which you have put your time and energy – much worse is to be disqualified for regulatory failures and be prevented from starting afresh.

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