How we defeated Insolvency Service proceedings and secured costs for a Director accused of Bounce Back Loan (BBL) misconduct
Led by one of our partners, Sukhbir Mall, we successfully acted for a company director facing Bounce Back Loan (BBL) director disqualification proceedings brought by the Insolvency Service (IS) in relation to an alleged improper application for a £50,000 BBL.
The proceedings were ultimately discontinued. No disqualification order was obtained. At a subsequent costs hearing, the Court rejected the Insolvency Service’s arguments for the Secretary of State’s costs and ordered it to pay the Director’s costs, recognising that the case should not have been pursued and proceedings should not have been issued.
The Director said:
“I appreciate your help with a win over the government, which as everyone knows doesn’t happen very often.”
The Insolvency Service’s Allegations in This Bounce Back Loan Case
The IS alleged that the Director had misapplied for a £50,000 Bounce Back Loan by:
- Stating a turnover figure despite the company having filed dormant accounts for the year ended 31 December 2019
- Failing to demonstrate that the business was carrying on trading as of 1 March 2020
- Being therefore ineligible for a Bounce Back Loan under the scheme rules
The IS relied primarily on historic bank statements and the filing of dormant accounts to argue that the business was not operating at the relevant time.
Background to the Director Disqualification Proceedings and Our Instructions
We were instructed to represent the Director and undertook a detailed fact‑finding exercise, taking comprehensive instructions to understand the full commercial and regulatory context. In our experience, the Insolvency Service is often a stranger to the full facts of a case, and our first job is to establish them.
We addressed:
- Why the business could not operate face to face during COVID 19 restrictions
- What steps the Director took to mitigate the impact of the pandemic
- The nature of the business and the industry in which it operated
- The rationale for the turnover figure used in the BBL application
The company had been incorporated on 5 April 2019, meaning that by the time of the BBL application it did not have a full trading history. The turnover figure relied upon was a reasonable and legitimate estimate, based on:
- The Director’s prior experience operating similar businesses
- Turnover figures from previous companies within the same network
- Knowledge of the market, pipelines and expected contracts
- Information reasonably available at the time of the application
We also explained the circumstances surrounding the filing of dormant accounts and clarified that this was not evidence of dishonesty or an abuse of the Bounce Back Loan scheme. In addition, we addressed a separate settlement reached with the liquidator, demonstrating that it was unrelated to the IS’s allegations.
How We Responded to the Insolvency Service’s Bounce Back Loan Allegations
We submitted comprehensive and detailed letters of representation explaining that:
- COVID 19 disruption did not equate to an absence of business activity
- Dormant accounts were not determinative of eligibility
- The BBL scheme expressly permitted reliance on estimated turnover
- There was no intention to mislead and no personal benefit obtained improperly
The IS wanted more evidence
Despite these representations, the Insolvency Service issued formal proceedings.
We then conducted a full forensic review, worked closely with Counsel, and submitted further evidence in support of the Director’s position. This evidence ultimately led to the Insolvency Service discontinuing the proceedings.
The Insolvency Service later sought to argue that the case was discontinued only because “new” evidence had been provided late.
The Costs Hearing and the Court’s Findings
At a separate hearing to determine costs, we robustly challenged the IS’s position.
The Court accepted that:
- The evidence relied upon by the Insolvency Service to justify discontinuance was evidence it could, and should, have obtained itself
- The Insolvency Service has inherent statutory powers, access to funding and investigative resources far beyond those available to an individual director
- It was unreasonable to pursue proceedings and then seek to avoid costs by alleging late disclosure
The Court rejected the Insolvency Service’s arguments and ordered it to pay the Director’s legal costs for having to defend proceedings that should never have been brought.
The Director added:
“With so many solicitor firms to choose from online, I honestly couldn’t have picked a more professional, experienced and attentive group of individuals…”
What This Bounce Back Loan Director Disqualification Case Shows
This case highlights the importance of challenging assumptions made by regulatory bodies – the Insolvency Service here – and ensuring that investigations are conducted fairly and proportionately.
Newly incorporated companies, COVID 19 disruption, dormant accounts and estimated turnover figures require careful and contextual analysis, not blanket conclusions. The Court’s approach reinforces that the Insolvency Service must properly exercise its investigative powers before issuing proceedings and cannot shift the cost burden onto directors where it fails to do so.
Outcome for the Director
The Insolvency Service’s director disqualification proceedings were discontinued meaning there was no director disqualification order.
The Court rejected the Insolvency Service’s costs arguments and costs and were awarded to the Director.
Overall, an excellent result as the Director’s reputation and livelihood was protected
Are you facing Bounce Back Loan Director Disqualification allegations?
Directors often contact us after receiving a letter from the Insolvency Service or when proceedings have already been issued. Early, specialist advice can make a decisive difference to the outcome.
If you are facing allegations relating to a Bounce Back Loan or director disqualification, we can help you understand the case against you, gather the right evidence and protect your position. Contact us or call us on 0121 200 7040 for a free of charge, no obligation initial discussion.
Our team of director disqualification specialist solicitors has deep expertise in defending directors facing BBL investigations. Take a look at some of our other successes in defending director disqualification proceedings.
Frequently Asked Questions about Bounce Back Loans and Director Disqualification
Do dormant accounts mean a company was not trading?
No. Dormant accounts can be filed for administrative reasons and are not conclusive evidence of non‑trading.
Can estimated turnover be used for a Bounce Back Loan?
Yes. The scheme permitted estimated turnover where a company did not have a full trading history.
What does the Insolvency Service look at in these cases?
Bank statements, accounts, trading activity, director explanations and any material relevant to eligibility.
Can Bounce Back Loan director disqualification proceedings be defended?
Yes. These cases are fact specific and often defensible where the Insolvency Service has misunderstood the business or relied on incomplete information.
What happens if the Insolvency Service gets the facts wrong?
The Court can reject its position, discontinue proceedings and award costs to the director, as happened in this case.
