The Continuing Commercial Legacy of Covid: Bounce Back disqualifications and balancing books

Bexley Beaumont Partner Phil Sheard writes that dealing with the consequences of a Covid Bounce Back loan programme described by MPs as an “open goal for fraudsters” means that the legacy of the pandemic is likely to be with companies, lenders and insolvency practitioners for some time to come without any guarantee of recovering a substantial proportion of the sums handed out to businesses.

Almost a year on from the lifting of the last restrictions designed to prevent the spread of coronavirus, some might now imagine the pandemic to be particularly unpleasant history for homes and businesses across the globe.

However, I believe that legacy of Covid-19 will be felt for some time, even if public attention and the news cycle seems to have moved on, focusing more on rising living costs instead.

The latest insolvency figures show that the number of businesses folding has continued on an upward track over the last two years (

In fact, the number of company insolvencies in January was higher than the same month in 2020, before Covid threw so many business plans off course.

Although indicative of a worrying trend, that data doesn't necessarily tell the full story of why companies are failing.

If we look even closer at the available details, we see that the Insolvency Service is being increasingly occupied by the ongoing commercial legacy of the pandemic.

As I've been telling James Hurley, the Enterprise Editor of The Times, almost half of all director disqualifications during the current financial year have been accounted for by individuals found to have abused measures designed to sustain firms during lockdown.(

The number of such cases has indeed more than doubled in the space of less than 12 months.

As the Insolvency Service statistics demonstrate, the package of support put in place by the Government once Covid-19 struck helped prop up many companies which might otherwise have ceased trading.

According to the British Business Bank which co-ordinated the distribution of a number of different loan schemes, at least 500,000 jobs were saved as a result (

The loans arguably had another unintended consequence, though, changing the patterns of behaviour of some directors.

In the past, they might have extracted money from their businesses and looked for ways not to pay company creditors.

They might then look to liquidate the company or appoint administrators and, if possible in the latter scenario, buy back any remaining assets at an attractive price before resuming trading through a new, so-called 'phoenix' company.

In the last three years, the Insolvency Service data shows that there have been no disqualifications involving 'phoenix' schemes.

That is because directors who might have been tempted by the potential advantages of a ‘phoenix’ have instead been able to rely on Covid loan schemes both to keep their companies afloat and maintain a level of personal income and lifestyle.

Such conduct is usually only detected when businesses collapse and the Insolvency Service is able to determine whether Covid loans have been used improperly.

I am very much familiar with the issue because a sizeable proportion of my current cases either relate to lenders and liquidators trying to recover Covid loans or companies struggling to meet their current liabilities.

Not all of those cases, I should point out, involve impropriety. There are many companies for which repayment of such loans has compounded the recent rise in operating costs.

Even so, the Department for Business, Energy and Industrial Strategy (BEIS) highlighted last October that at least £1.1 billion of the £46.6 billion handed out in bounce-back business support had been identified as "suspected fraud" (

It is, of course, in the interests of the Insolvency Service, taxpayers and the wider business community to pursue wrongdoing.

Vigorous investigation and punishment sends a clear message about what the Service is doing and what company directors should not be doing.

However, if loans have been spent, the task facing liquidators of trying to secure repayment from directors who might also have no discernible assets becomes a thankless task - almost like trying to get blood from a stone.

It is one reason why I suspect that what we’ll be seeing in the future are more disqualifications but fewer recoveries of any meaningful cash.


To discuss any of the above further, please feel free to contact Phil:  |  07780 937624