The furore around the government’s pandemic support loan schemes has been well documented since their demise. We have previously written about claims that up to £17bn of bounce back loans (BBLs) issued would never be paid back and around £4.9bn of that is suspected to have been lost to fraud. There has also been a notable increase in the number of director disqualifications where pandemic support loan abuse is cited as a reason for disqualification proceedings, with 459 directors disqualified in 2022-23 for this reason alone (49% of all disqualifications). The average length of disqualification period also increased by 16 months to seven years four months, when compared to the previous year.
Now it has emerged that banks may have been complicit in encouraging companies to apply for BBLs to repay other bank indebtedness. BBLs of up to £50,000 (depending on turnover) were available for companies engaged in “trading or commercial activities” at the time of application. The application process required companies to self-certify their turnover and solvency, and funds would usually be available within 24 to 48 hours. The BBLs were backed by a government guarantee, so the banks would be repaid in the event of debtor company default. The scheme has previously been criticised due to limited underwriting checks carried out at the point of lending, which made it particularly vulnerable to fraud.
The Times has reported that NatWest advised a company that “wasn’t trading, had no income and had no realistic chance of any future income” to apply for a BBL to repay its outstanding overdraft balance before NatWest would consent to that company being dissolved. A company cannot be dissolved (i.e. struck off the register of companies) where a legitimate objection has been raised by a creditor to which a debt is owing at the relevant time. Without repaying the overdraft or NatWest withdrawing its objection, the company could not otherwise have been dissolved. The company subsequently applied for a BBL of £2,000 to pay off the overdraft and other small debts. Following a complaint to the Ombudsmen, in which it was determined that NatWest should not have provided the company with the BBL, the bank was reportedly required to write off the remaining loan balance and withdraw its objection to the company’s dissolution.
NatWest denies having advised the company to apply for a BBL and refutes the claims against it. However, this worrying development will no doubt dent confidence in the banking sector, particularly as the Financial Ombudsmen Service found in favour of the complainant director in this case. Hopefully this is an isolated incident and not the start of a new wave of claims against banks, this time relating to BBL fraud.