Insolvency practitioners must report Covid scheme fraud

National Crime Agency

Insolvency practitioners have been instructed to report fraudulent coronavirus loan applications to the government, ahead of an expected surge in company failures next year.

The Insolvency Service has written to firms advising that “if it appears that a person has applied fraudulently” for the government-backed business interruption loan scheme and bounce back loans, “it is the duty of the insolvency practitioner to consider their reporting obligations”.

Insolvency firms are expecting a “tsunami of winding-up petitions” being presented by creditors next year once a moratorium on restricting the use of such action ends in March.

The National Crime Agency has warned that bounce back loans for small businesses are being targeted by criminals and the state British Business Bank, which administers the scheme, warned the business department before the launch in May that the scheme was “vulnerable to abuse by individuals and organised crime”.

Figures from the Treasury in October showed almost 1.5 million businesses in the UK have accessed £65.5 billion via government-backed coronavirus lending schemes.

The bounce back loan scheme has supported almost 1.4 million small and micro businesses and the coronavirus business interruption loan scheme (Cbils) has helped 77,900 businesses since March.

Dominic Offord, partner at Howard Kennedy, the law firm, said that the bounce back loans, which are up to £50,000, were “particularly vulnerable” to fraudsters because they rely on self-certification to determine eligibility, limited verification and credit checks.

He estimated that up to 10 per cent issued so far may have been obtained fraudulently.

Mr Offord said that fraud cases were “in danger of falling through the net” because the authorities were unlikely to have the resources to investigate and would instead probably focus on investigating larger frauds.

“I anticipate that insolvency practitioners are going to be expected to act as the police, to investigate and report on fraudulent applications when companies are placed into liquidation,” he said.

Christina Fitzgerald, vice-president of R3, the insolvency and restructuring trade body, said: “HMRC has created a dedicated task force to investigate how the money from Covid measures has been spent. The task force will identify insolvency cases where it has queries about the use of these funds, notify the insolvency practitioners working on these cases about its concerns and ask them to investigate further.”

The banking industry is overseeing plans to establish an agency to manage the collection of overdue loans.

UK Finance, the banking trade body, is conducting a feasibility study on the creation of a vehicle that would oversee debt collection on behalf of lenders who took part in the state’s emergency bounce back loan scheme.

It is designed to ease the burden on banks to collect debt given the unprecedented scale of the scheme.