Insolvency service cracks down on bounce back loan abuse

The Insolvency Service is taking a very hard line on the misuse of the covid loan scheme and is continuing to clamp down on businesses and directors who exploited the government’s support during the pandemic.

The latest figures from the Insolvency Service show that 1,036 directors were disqualified in 2024-2025, of which 736 were banned for covid loan abuse.  The average length of a ban was eight years and many directors also received orders to carry out unpaid work and pay back some or all of the outstanding balances on their loans.

Directors can be banned from being the director of a company for various actions which can include any failure to comply with their duties as a director and company law. Common examples include failure to pay tax or VAT, not maintaining or filing adequate accounts and misuse of company funds or securing funds (such as bounce back loans) which they are not entitled to.

The bounce back loan scheme was introduced during the covid pandemic to help small and medium-sized businesses struggling due to the economic impact of the pandemic. The loans were made available on the condition that the funds were used for the benefit of the business and not for personal purposes. 

Five years on from the introduction of the covid loan scheme and many businesses have still not recovered since this time and are struggling to repay the loans. In some cases, there are genuine reasons for this inability to repay but the scheme was also abused by many directors who saw an opportunity to exploit the system.

Bounce back loan fraud is common and can include:

• misusing the loans for personal purposes rather than for the business;
• making multiple applications with different lenders even though the scheme only entitles a business to one loan; and
• providing false information on applications, such as requesting loans for dormant companies or fabricating the turnover figures of the business.

Breaking the terms of a director disqualification order can be very serious and can lead to a fine or a prison sentence of up to two years.

If you are struggling to repay your covid loan or are worried that you have abused the rules of the scheme in some way, then it is important that you seek the appropriate advice of insolvency professionals and legal experts who can advise on your conduct. 

Senior Recovery & Insolvency Solicitor, Eleanor Stephens comments:

The lengthy disqualification period and other penalties being handed out by the Insolvency Service reflects their commitment to correct the abuse of the covid loan scheme and it appears that these cases will continue to be pursued for the foreseeable future.

If you are in any way concerned about falling foul of the rules of the scheme or if you are facing an investigation by the Insolvency Service, then please get in touch.  Our team of experienced director disqualification solicitors can provide you with the expert support and guidance needed to deal with director disqualification investigations including those cases involving the covid loan scheme and where necessary, navigate any issues raised by the Insolvency Service.