On Friday 24 June 2022, Abdulrazag Zagroba became the first person to be successfully prosecuted for Bounce Back Loan (BBL) fraud. He was sentenced to 2 years imprisonment and also received a Director Disqualification period of 7 years having pleaded guilty to offences under section 2 of the Fraud Act 2006 (fraud by false representation) and section 1007 of the Companies Act 2006.
With the first arrests being made in July 2020 in connection with fraudulent applications under the Coronavirus Bounce Back Loan scheme, it was only a matter of time before a conviction was obtained. The length of the prison term and the director disqualification period marks a watershed moment for directors in the post Covid era.
The details of this case
The director had incorporated Amigo Pizza (Manchester) Ltd, a matter of months before the UK was hit by the pandemic. On the face of it, it was not usual that a company in its infancy would be in need of financial support. That is where it gets interesting.
On 17 June 2020, Mr Zagroba submitted an application to Companies House to dissolve the company. Yet 2 weeks later, he applied for a Bounce Back Loan of £20,000. Despite the clear terms of the BBL that required funds to be used for the economic benefit of the company, Mr Zagroba purchased himself a car and distributed the balance of the cash to his family living abroad. The company was dead long before it could ever make its first loan repayment.
The Insolvency Service has several powers it can use
This case, we think the first of many, is a stark warning to directors that even where modest sums are involved, this will not deter the Insolvency Service from pursuing criminal sanctions, where Covid-19 funding (to include CBILS loans as well as BBLs and other funding) has been abused by directors.
With powers that include: compensation orders, criminal convictions and director disqualification, the reach of the Insolvency Service is wide ranging and severe. That will not change, but what can change, with the benefit of specialist legal advice is the outcome of such investigations.
Here at NDP with our experienced team of insolvency and disqualification solicitors behind you, we can make a real difference. We regularly represent directors facing multi-faceted investigations by the Insolvency Service, and our experience is that these types of claims can be defeated.
Lesson to be learned
Not all cases involving the alleged misuse of Bounce Back Loans will result in criminal investigation and prosecution. Such cases may, however, attract civil law claims from Liquidators and the Insolvency Service, including Director Disqualification. Whatever the investigation the director faces, we can help, as these testimonials show.