“This represents a milestone and has been a long time in coming. Indications are there will be many more”
On 24th June 2022, Abdulrazag Zagroba, the sole director of Amigo Pizza (Manchester) Limited, was sentenced to 24 months in prison for Bounce Back Loan (BBL) fraud, the first successful criminal prosecution for this crime by the Insolvency Service. He was also disqualified as a director for 7 years. One of our Insolvency Practitioners, Antony Batty, commented:
“This represents a milestone and has been a long time in coming. Indications are there will be many more. It also shows the powers that the Insolvency Service has at its disposal.”
In this article, we look at the details of this case and why it represents such a milestone in the context of insolvency and BBLs. However, we also look into the issue of those who took out a BBL legitimately, to get their businesses through Covid-19, and who now find themselves struggling to repay. What happens to them?
The details of this case
According to Government figures, over £47 billion worth of BBL facilities were approved, with the total number of approved facilities being over 1.5 million. It is estimated by the Public Accounts Committee that £4.9bn of the £47bn spent on the BBLS was lost to fraud, while another £12bn has been lost to the scheme mainly through businesses collapsing during the pandemic.
As has been said, the race to help fund businesses through lockdown and preserve businesses and jobs meant that speed became more important than due diligence, and that meant that thousands of directors simply saw BBLs as an easy way to get ‘free money’ with a good chance the Insolvency Service would never catch up with them. Tales of the money being used for mortgage repayments, school fees, overseas property and even jacuzzies abound.
However, the fight back began in July 2020, when the first arrests were made for fraudulent applications for BBLs, with Mr Zagroba being the first to receive a jail sentence. The details of his case are:
- Mr Zagroba was the sole director of Amigo Pizza, which was incorporated in January 2020 and then dissolved in October 2020.
- The application to dissolve was signed on 17th June 2020, but less than 2 weeks later he applied for a Bounce Back Loan of £20,000.
- Crucially for the case against him, Mr Zagroba did not tell the lending bank that his Company was in the process of being dissolved and he signed the loan declaration stating the Company would be able to make repayments. By the time the loan was due to be repaid in June 2021, the Company had already been dissolved.
- The BBL should only be used for business purposes, but when interviewed by the Insolvency Service under caution, Mr Zagroba admitted that:
- He had arranged for friends to travel with around £14,000 in cash to pass on to his family abroad.
- The remaining £6,000 was used to buy a car and pay for its insurance.
As Julian Barnes, Chief Inspector of the Insolvency Service said:
“Covid loans were designed to support viable businesses during the pandemic. Abdulrazag Zagroba, however, cynically sought to exploit the covid loan scheme and by dissolving his Company, he intended to frustrate any attempt by the lender from taking action to recover the outstanding loan.
This sentence should serve as a warning to others who engaged in this behaviour, and they should come clean and repay the money before it is too late.”
What Happens if a Company Cannot Repay its Bounce Back Loans?
Many thousands of businesses took out BBLs, and other forms of Covid Loan, entirely legitimately. With the advent of supply chain disruption and rapid inflation caused by a combination of the Ukraine War and its effect on the Global Economy, as well as post Brexit settlement difficulties, many companies are now struggling to repay their loans.
Advice from the British Business Bank detailed in an earlier article gives the following guidelines to directors in that position:
- Any Bounce Back Loan borrower with concerns regarding repaying the loan should contact their Lender to discuss the various options available.
- Your Lender will be able to advise you on your options in the light of any other borrowing you may have with them.
- Your Lender will explain to you about the various Pay as You Grow (PAYG) options. These options were announced by the Chancellor in September 2020, and are designed to enable businesses to:
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- request an extension of their loan term to 10 years from six years, at the same fixed interest rate of 2.5%
- reduce their monthly repayments for six months by paying interest only. This option is available up to three times during the term of their Bounce Back Loan
- take a repayment holiday for up to six months. This option is available once during the term of their Bounce Back Loan.
Businesses that have taken out a Bounce Back Loan can use Pay as You Grow (PAYG) to help manage their cashflow to have a better chance of getting back to growth. The above options can be used individually or in combination with each other.
The BBB does point out that: “Borrowers should be aware that they will pay more interest overall if they use one or more of these options, and that the length of the loan will increase in line with any repayment holidays taken.”
How can Insolvency Practitioners Help?
Given the very severe difficulties that many businesses are now facing due to inflationary pressure and declining economic activity, a concerning situation can very quickly become very worrying. If PAYG options are not enough, then swift action is needed, as Covid Loans still need to be repaid.
There are several ways of turning around a business in financial distress, and avoiding liquidation, including creditor negotiations, refinancing, or a complete restructure using a Company Voluntary Arrangement, for example. Here are some testimonials for CVAs we have supervised.
In our experience, if you are worried about your business’s finances, the sooner you seek professional help, from your accountant, or a firm of Insolvency Practitioners, the better. Early intervention is vital to survival, especially right now. The consequences of not acting could rapidly lead to formal insolvency and liquidation.
Contact our Insolvency Practitioners for help and advice
If you have concerns regarding any of these issues, please contact our expert team of Insolvency Practitioners and administrators on the numbers below and we can arrange a free initial consultation without obligation.
Also, K&W Recovery, trading as Antony Batty and Company, Thames Valley:
