As you will be aware from reading our previous blogs, the government is pushing the banks hard to minimise the fallout from writing off Bounce Back loans. If you follow The Insolvency Service on LinkedIn, you will see them frequently posting about directors that have been banned for misusing Covid support schemes.
It was therefore with some interest that we learned that Barclays Bank Plc has entered into a pilot scheme arrangement with Manolete Partners with a view to recover monies fraudulently obtained through the government backed Bounce Back Loan scheme.
Companies were entitled to apply for up to £50,000 of loans, providing that the amount borrowed represented no more than 25% of their annual turnover.
Manolete Partners is well known within the insolvency industry as a disrupter who gave Insolvency Practitioners access to litigation funding, enabling more actions to be issued. The pilot scheme, which has already started, is due to run for an initial period to June 2023, is supervised by the British Business Bank, and will be looking at over 100 companies who have defaulted on their loans already.
As reported in the Financial Times, Steve Cooklin, the chief executive of Manolete Partners, was quoted regarding the steps other banks might think about taking: “The longer they (other banks) wait to engage with us the more likely that the target directors will have dissipated the Bounce Back Loan monies and the less we can therefore return to the taxpayer.”
He went on to say: “In some cases loans went out of business accounts into personal accounts. There seems to be a lot of directors who have tucked the money away and think if someone comes knocking on the door I’ll give it back.”
In total, about £46 billion was loaned to companies through both the Bounce Back Loan scheme and the Coronavirus Business Recovery loan scheme. Official figures estimate that the losses attributed to fraud might be as much as £1billion, although it’s still relatively early on to estimate with any real accuracy, and the final figure could be much higher.
Barclays is reported as being the largest provider of Bounce Back Loans, amounting to some £10.8 billion. It’s no surprise then that they have started proactively trying to recover loans that have been in default. According to Manolete, they have been involved in assisting the bank with recoveries for the past 18 months.
Cooklin was further quoted in City AM as saying: “Recovery rates have generally been very high and cases completed within an average of just five months and at minimal cost.”
In contrast, the new pilot scheme will use Winding Up petitions against errant companies, placing the companies into Compulsory Liquidation if payment isn’t received. The Official Receiver would then be appointed as liquidator and administer the case initially. Manolete would then purchase the right of the liquidator to pursue the directors personally through the courts. After Manolete’s expenses have been paid, any recoveries would be split between the bank and Manolete.
Barclays were quoted in the Financial Times as follows: “We utilise debt collection agencies and use our rights as lender to take enforcement action. Where appropriate, we inform law enforcement agencies about borrowers where we suspect criminal wrongdoing.”
There are clearly two separate strands in play here: the civil recoveries of money where the company has defaulted on a loan, and may for genuine reasons be unable to pay it back, and the more sinister one, where directors of companies knowingly applied for loans where there was never any prospect of the money being repaid, and it seems where often the company didn’t even qualify for the loan in the first place.
We suspect that following this pilot scheme other banks will be persuaded to instruct third parties to recover suspected fraudulently applied for loans.
If you’re struggling to pay back a Bounce Back Loan, please talk to one of the team at BLB Advisory and we can discuss the options.