CPDStore

The COVID-19 pandemic prompted the Government to introduce an unprecedented programme of financial support for UK businesses. The Bounce Back Loan Scheme (BBLS) and the Coronavirus Business Interruption Loan Scheme (CBILS) provided a lifeline to over 1.5 million businesses facing catastrophic disruption to their trading and cash flow.

The BBLS offered: -

• Government-backed unsecured loans of up to £50,000; with 
• no interest or fees for the first 12 months;and 
• a 2.5% annual interest rate thereafter, with the Government guaranteeing 100% of the loan. 

CBILS provided larger facilities of up to £5 million with an 80% Government guarantee. Both schemes closed to new applications on 31 March 2021.

The post-pandemic economic climate has become increasingly challenging – with rising costs, inflationary pressures and tightening credit.   Many businesses that relied upon these schemes have subsequently entered financial difficulty or formal insolvency. 

The Insolvency Service has been tasked with investigating potential abuses of these loan schemes, and the number of director investigations and disqualifications is rising sharply.

Accountants advising directors/businesses in these circumstances need to understand: –

• The legal framework governing repayment obligations and enforcement;
• The distinction between a company’s liability and a director’s personal exposure;
• The conduct triggers that can turn an unsecured, non-guaranteed loan into a source of personal liability and disqualification; and
• The options available to businesses that cannot repay: CVL, CVA, Restructuring Plans and the implications of each.

This session is designed to give practitioners a firm grounding in the legal and practical issues arising from BBL and CBIL defaults.   That is in the context of insolvency and director liability, with reference to live case examples and current enforcement trends.

The course examines: –

• Background and structure of the BBLS and CBILS:
  • Eligibility criteria, loan limits and the Government guarantee;
  • Self-certification obligations and the duties placed upon lenders;
  • Key differences between BBLS and CBILS, including the personal guarantee position for CBILS facilities below £250,000;
  • The prohibition on lenders taking or enforcing personal guarantees in connection with BBLS loans.

• Insolvency – the legal framework:
  • Cash-flow and balance-sheet insolvency – s.123 Insolvency Act 1986 (IA86);
  • Identifying insolvency at the point of loan application: the significance of a company being insolvent when a BBL/CBIL was taken out;
  • The relevance of the Corporate Insolvency and Governance Act 2020 (CIGA 2020) and the temporary restrictions on winding-up petitions during the pandemic.

• Closing an insolvent company – options and consequences:
  • Creditors’ Voluntary Liquidation (CVL): the correct route where a company cannot repay its BBL/CBIL; the “deemed consent” process; treatment of the BBL/CBIL as unsecured debt in the waterfall;
  • Company Voluntary Arrangements (CVAs): can a BBL/CBIL be compromised? The lender’s decision-making role; the position on PPR and PPV proceeds;
  • Restructuring Plans: use and limitations;
  • Dissolution/Strike-Off: why this is not a lawful route where an outstanding BBL/CBIL exists; lender automated objections; the Rating (Insolvency Service) Act and the six-year investigation window;
  • The prohibition on negotiating or settling a BBL at a discount.

• Director liability – the key risk areas:
  • The fundamental protection: the loan belongs to the company, not the director;
  • Conduct triggers that can expose a director to personal liability:
  • Using BBL/CBIL funds for personal expenditure (e.g. personal debts, luxury goods, mortgage payments);
  • Preference payments to connected parties while leaving the BBL/CBIL and HMRC unpaid;
  • Application fraud: falsifying turnover figures to obtain a higher facility;
  • Applying for a loan when the company was already insolvent with no reasonable prospect of repayment;
  • Paying excessive dividends while creditors (including the BBL lender) remained unpaid.
  • The “reasonable expectation of repayment” test and what it means in practice;
  • Personal Service Companies: the Insolvency Service’s position on directors using BBL monies to fund reasonable living costs where no other income was available.

• Director disqualification under the CDDA 1986:
  • The Insolvency Service’s investigation and enforcement powers;
  • Case studies: disqualification periods imposed for BBL/CBIL abuses – from middle bracket (9 years) to top bracket (11–15 years);
  • The scale of the fraud problem: NAO estimates of 11% fraudulent loans (£4.9 billion);
  • The new legislative powers enabling HMRC and the Insolvency Service to investigate dissolved companies and CVA abuses.

• Set-off, all-monies debentures and IP obligations:
  • The lender’s right of set-off against credit balances and the IP’s options;
  • Whether an existing all-monies floating charge can catch BBLS proceeds;
  • The IP’s ethical obligations when advising on the transfer of funds pre-liquidation: the joint RPB statement and the Code of Ethics;
  • BBLS loans and inter-lender transfer restrictions

By attending this session, delegates will: –

• Understand the legal structure of the BBLS and CBILS and how their terms interact with insolvency law;
• Be able to advise directors on their personal liability position and the conduct that places them at risk;
• Know the lawful routes to closure for an insolvent company with an outstanding BBL or CBIL, and the consequences of taking the wrong route;
• Be aware of the Insolvency Service’s current enforcement priorities and the evidential standards being applied in disqualification proceedings;
• Be in a position to spot the early warning signs that a client may be exposed to investigation and to advise them to seek specialist assistance without delay.

This session will be of most utility and interest to: –

• Accountants and financial advisers with clients who hold outstanding BBL or CBIL facilities;
• Company directors and business owners seeking to understand their obligations and exposure.

As the enforcement landscape continues to develop, the course will cover any especially topical issues extant at the course date.

This course is designed to provide both an accessible overview for those coming to this area for the first time and a practical update for more experienced practitioners. It is suitable to a wide range of delegates,

1. Foundation
2. Intermediate
3. Advanced