How are bounce-back loan disputes triggered?

Although it has now been several years since businesses originally took out bounce-back loans, lenders and government bodies continue to retrospectively review applications and how funds were used. Directors who suspect there may have been irregularities in obtaining or using a BBL should be aware that they may still face investigation and, potentially, legal consequences.

Investigations and disputes are typically triggered by three main issues:

• Eligibility issues: Scrutiny reveals the company was not eligible at the time of application. This includes overstating turnover, applying when dormant, or taking out more than one BBL.
  
  
• Misuse of funds: The loan was not used for the "economic benefit of the business." This includes using funds for personal purchases, paying off personal debts, or transferring money to personal accounts without commercial justification.
  
  
• Default and dissolution: The company defaults on repayments, or is dissolved (struck off) without properly settling the BBL, prompting an investigation into the director's conduct.

What risks do I face as a director in a BBL dispute?

Although the original terms of the government’s Bounce Back Loan scheme did not require a personal guarantee, directors are not entirely immune from personal liability. If misconduct is found to have occurred, either during the application process, in how the funds were spent, or in how the company was dissolved or wound up, the consequences for individual directors can be severe:

You may be banned from serving as a company director

The Insolvency Service may seek a Director Disqualification Undertaking to settle the dispute, meaning you voluntarily disqualify yourself (sometimes in exchange for a shorter disqualification period), or you may be forcibly disqualified as a result of a court case. In either scenario, the maximum disqualification period is fifteen years.

You may be held personally liable for all or part of the debt

If you are found guilty of misfeasance, improper use of funds or other breaches of your duty as a company director, the court may issue a Personal Liability Order, which makes you personally responsible for paying off the bounce-back loan debt (or an agreed portion of the total debt).

You may be subject to criminal proceedings in some cases

Serious cases where a director is suspected of deliberate deception may be handled through criminal proceedings, principally under the Fraud Act 2006. In these cases, there is a risk of heavy fines and compensation orders, as well as significant prison sentences, if a director is found guilty. 

BBL terminology: legal terms explained in plain English

What does UK law say about bounce-back loans?

In the UK, a loan under the Bounce Back Loan scheme is a company debt, not a personal one. However, directors can be held personally liable if they breach their legal duties. This is primarily pursued under the Insolvency Act 1986.

If a company is liquidated, a liquidator (or the Insolvency Service) will investigate the director's conduct. If they find evidence of misfeasance, such as using the loan for personal benefit rather than for the economic benefit of the business, they can ask a court to issue a Compensation Order, requiring the director to personally repay the misused funds.

Need legal advice on a bounce-back loan dispute?

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How to respond to a bounce-back loan dispute

If you receive a demand letter from a lender, debt collector, or insolvency practitioner, do not ignore it. How quickly you respond, and how you handle the enquiry, can significantly impact the outcome.

1. Don’t panic. It’s important to take the enquiry seriously and respond promptly, but bear in mind that many BBL disputes can be resolved without serious consequences.
   
   
2. Gather comprehensive records. Collect all BBL-related documents: the application, accounts for the relevant financial years, and bank statements showing exactly how the loan was spent.
   
   
3. Review “Pay As You Grow”. If the issue is affordability, contact your lender immediately to discuss extending your loan term or taking a payment holiday before you default.
   

Seek specialist legal advice. Complex Law’s commercial team specialises in director disputes and insolvency matters. We can help you understand your position and formulate the best possible strategy to respond.