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Bounce Back Loans (‘BBL’): NDP avoids a Director Disqualification sanction and a Compensation sanction for our Solicitor client.

This case study from December 2023 shows how swift and decisive communication by a Director and his/her advisors with the Insolvency Service (‘IS’) can result in a Director Disqualification Investigation (‘DDI’) being abandoned by the IS.

NDP were instructed by a Solicitor client who was being investigated by the IS as to his conduct, that the IS alleged breached his statutory duties as a Director of his now liquidated limited company, with director disqualification a real possibility. The IS alleged in particular that the client had:

‘Overstated his company’s turnover when applying for a BBL to obtain more funds than the company was eligible to receive during the Covid pandemic.’

Comment

This is a common allegation that we see in very many such BBL cases.  It implicitly involves an allegation of Fraud and/or money laundering.  If proved, this allegation of Unfit Conduct would likely result in a period of significant disqualification for our Solicitor client (11 years plus), with potentially far-reaching consequences (see below) for his business, reputation, family and professional future.

What legal consequences might flow? What the Courts are saying and doing

Recently the first of a number of IS inspired cases against Directors involving the misuse of BBLs have reached the Civil and Criminal Courts, with the following outcomes:

Criminal Courts

  1. Criminal Law investigations by the IS and NATIS (amongst others) resulting in criminal prosecutions have seen the imposition of:
  • Criminal convictions resulting in other sanctions, to include suspended prison sentences, fines and Director Disqualifications imposed by the Criminal Courts (yes – the Criminal Court also has power to disqualify).
  • Criminal financial Confiscation proceedings, following convictions.

           Comment

Headed up by our Senior Team, Neil Davies and David Hanman, NDP are representing a number of Directors faced with criminal investigation. Such investigations justify an article to themselves. They way in which the investigated Director approaches a tape-recorded interview under Criminal caution is crucial.

Civil Courts

These include Civil Director Disqualification Investigations resulting in:

  1. Disqualification bans of 8 to 15 years for BBL abuse (e.g. overstating turnover and/or misuse of BBL funds once received).
  • Director Disqualification Compensation Orders (‘DDCO’) made against disqualified Directors (often for all/some part of the BBL(s)). The imposition of a financial obligation to repay the BBL, on the Director personally, may be a matter of real burden. This subject also justifies an article to itself but there are many things the Director can do to protect and help himself/herself.

Back to the story:

The Solicitor client in this BBL case study contacted NDP for advice and assistance in handling the matter.

How did we respond to the IS notice?

We sought and obtained all evidence held by the IS that they relied upon to make their ‘Unfit Conduct’ allegation against our client, as well as seeking from the IS (and others) any evidence that could undermine the Secretary of State’s (‘SOS’) case (the IS has a well-established duty to act fairly).

The outcome – The IS dropped their investigation

The Solicitor client’s position was set out in a detailed letter of representations to the IS. The IS dropped their investigation shortly thereafter and confirmed the same in a letter to NDP. Always worth remembering the Director has knowledge as to what went on pre-liquidation. The IS does not. It is for the Director to fill in those knowledge gaps and with Solicitors, to deploy that material to best advantage.

The client was overjoyed with the result and was particularly surprised and delighted by the swift manner in which NDP had conducted the case since instruction. The client was thankful to Sukhbir Mall* and Harman Randhawa of NDP for their hard work and the speedy nature in which work was completed.

How likely is the IS to drop a Director Disqualification Investigation ‘early’ (or at all)?

It is certainly not unknown for the IS to drop investigations sometimes early in the investigation process. Often the IS will provide notice of intention to disqualify Directors early in the DDI process, if the evidence on the face of it, appears to it to be strong. However, once the IS is faced with credible evidence from the Director (supported where possible by documents and third-party evidence), its intention to continue an investigation often falls away.

The Insolvency Service’s duty is to act fairly and consider all the circumstances of the case

It is important to remember that the IS has a duty to investigate and consider all circumstances of a case, both good and bad. Our experience is that in the main, the IS does precisely that.

Our Comment

Given the enormous scale of the fraud carried out in relation to BBLs (it is estimated that £17 billion has been lost to fraud), the task of persuading the IS to abandon a DDI in relation to BBL’s can be and often is more challenging than in other IS (non BBL) cases.  The Director and his Solicitor must be prepared to persevere and be tenacious with their opposition, where appropriate and necessary.

Talk to us if threatened with Director Disqualification

If you or someone you know is facing an investigation into their conduct as a Director of a company either by the IS or a Law Firm (acting on behalf of the Secretary of State, NDP are more than happy to assist in dealing with matters in a swift and expedient manner. Please contact one of our Director Disqualification specialists, or call us on 0121 200 7040 for a free of charge initial chat.

*This case was conducted by Sukhbir Mall, a qualified Solicitor (since 2001) and Director of NDP. He is highly experienced in defending Directors who are undergoing a DDI, a Misfeasance claim by a Liquidator, criminal investigations against Directors via the IS, or otherwise. His experience earlier in his career, of working for the IS as an Investigator within their Director Disqualification unit means he has a deep understanding of how the IS works and what it is looking for in cases such as these. This has helped him deliver many excellent results for Directors from the instructions he receives.