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Tackling fraudulent BBILs / CBILs claims

30th November 2022


Brendan Clarkson

Director - Client Services

Azzurro Associates

News that if the British Business Bank deems a COVID-related loan to have been fraudulently obtained, the lender will not be able to claim under the Government guarantee, has been greeted  with dismay by the lending community facing a significant write off. But Azzurro Associates is working with leading Insolvency Practitioners, and have validated its proposal with a QC, to deliver a fair, professional, and timely solution to help lenders recover their money by holding fraudulent Directors personally liable whether a Personal Guarantee has been given or not.

In March 2020 when the pandemic first hit, businesses in the UK faced uncertainty and a financial challenge that was unprecedented. The Government mobilised quickly to put in a number of schemes to support businesses with deferred tax payments and payment holidays, and an unfamiliar word – furlough – became part of the common language. Two other abbreviations – BBILs and CBILs – also became familiar as businesses were afforded quick access to borrowing without personal guarantees (for loans under £250k in the case of CBILS). The speed of delivery of these schemes was impressive, and essential, for a business community that was very much in crisis. But, of course, it came with its problems.

Not surprisingly, a small but significant proportion of these loans were taken out nefariously, and the UK taxpayer is now being exposed to huge losses due to fraud. The national press are regularly reporting as fact what many of us in the credit community knew anecdotally to be true some time ago, and stories are emerging of individuals using their loans to buy superbikes, supercars and more. The true extent of how much has been lost to the taxpayer may only be known in 10 years’ time, when statistics will show how many borrowers paid their loans back, and how many loans were written off due to fraud, but the figure is likely to be significant. The case of We Are Nova, backed by Sir Terry Leahy, is under investigation for alleged misuse of BBILs
funds. The Times reported on Tuesday that companies linked to We Are Nova obtained almost £2m in bounce back loans for businesses that may not have been eligible.

In terms of BBILs, figures suggest that c£47.4bn of loans were paid out to 1.56m borrowers. Nine out of ten of these loans were issued by the top five lenders, with the average loan being £30k. One recent press article suggests that anything up to £3.5bn of the money lent may have been fraudulently borrowed. Clearly some sectors have been impacted more than others, the construction sector and wholesale & retail sectors being most affected. Whereas a typical SME loan book would normally see default rates in the region of between three and five percent, for BBILs alone the default rate is predicted to be in the region of 15-20 percent of which a significant percentage will be down to fraud.

The Chancellor has vowed that the Government was ‘going to do everything we can to get that money back and go after those who took advantage of the pandemic’. To evidence this commitment, he recently announced a £25m ‘Fraud Squad’ to tackle the issue, and that the Public Sector Fraud Authority (PFSA) would double the Government’s counter-fraud efforts and be tasked with ‘cracking down on criminal gangs who rip off the taxpayer’. Banks and other lenders are also being actively encouraged to play their part, with the spectre looming over them that the guarantees they had been promised for loans that have gone bad – and specifically those where a fraud has been committed – might not be as ‘guaranteed’ as first thought. Indeed, if the
British Business Bank (BBB) deems a COVID-related loan to have been fraudulently obtained, the lender may not be able to claim under the Government guarantee. Whilst lenders were quick to take action in the first instance, and should be applauded for delivering much needed cash to businesses, they could now be faced with significant write off.

The challenge is an enormous one, but so too was tackling the pandemic and the economic fall out that resulted. That required people to genuinely think outside of the box, to make bold, brave and perhaps even radical decisions.

However, there is a solution for lenders. Here at Azzurro, we are working with leading Insolvency Practitioners (IPs) and lawyers, and have validated our proposal with a QC, to deliver a no cost scheme for lenders. The scheme is centered on the premise that Directors can be held personally liable in very specific circumstances for loans that have been taken out fraudulently, regardless of whether a Personal Guarantee has been given or not.

Following the rejection of a claim for fraud by the BBB, we can use data analytics to identify if the Director has assets and assess whether a claim against the Director is likely to be effective and in the lender’s best interests. We have created a service that includes:

  • Portfolio management of fraudulent borrowers with engaged IPs
  • Pre-insolvency/amicable borrower engagement to deliver settlements
  • Company re-instatement and IP appointment to investigate claims
  • Fully funded legal action against fraudulent directors

Clearly there is little benefit to be gained from any action against a Director who has no ability to pay back what they have fraudulently obtained, hence why the initial use of data analytics is so important. But to address those who have, for want of a better word, cheated the lender (and ultimately the taxpayer) out of their money at a time of national crisis, we believe we have created a fair, professional, and timely solution to resolving an undoubtedly difficult challenge.

For more information please contact Brendan Clarkson or Karen Savage.

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