Covid-19 support scheme abuse: The Insolvency Service and the appointment of a Covid corruption tsar
The Insolvency Service recently released its 2023/24 Annual Report and Accounts containing enforcement outcome statistics in connection with Covid-19 loan abuse. In the same week, the Chancellor announced the government’s push to recruit a “Covid corruption tsar”. Charles Mather, solicitor in our regulatory and compliance team, looks at some of the key details.
Recent statistics
Continuing its focus on Covid-19 related director misconduct, principally in connection with Bounce Back Loans, The Insolvency Service’s rates of enforcement continue to grow year on year.
As a percentage of the director disqualifications and criminal prosecutions secured by The Insolvency Service in 2023/24, Covid-19 related fraud and misconduct represented 62% of the total figure, up from 48% in 2022/23 and 16% in 2021/22.
831 directors were disqualified for Covid-19 loan abuse, and the average disqualification period increased to 8.6 years from 7.4 years in 2022/23. According to The Insolvency Service, this reflects the seriousness of director misconduct in connection with Covid-19 support schemes.
Of the 22 individuals convicted following prosecution by The Insolvency Service in connection with Covid-19 support scheme misconduct, 14 were sentenced to imprisonment.
In addition to disqualification, The Insolvency Service took steps to recover a total of £2,833,037 through compensation orders and undertakings in connection with Covid loan misconduct by directors.
However, it is unclear how much of this has been paid, and the figure represents only a fraction of the £4.9bn estimated by The Department for Business Energy and Industrial Strategy in March 2021 as having been fraudulently obtained under the Bounce Back Loan scheme alone.
Covid corruption tsar
When the Chancellor, Rachel Reeves, first announced her intention to appoint a Covid corruption tsar last year whilst in opposition, she lamented that only 2% of an estimated £7.2bn in funds falsely claimed across all Covid-19 support schemes during the pandemic had been recovered so far.
Judging from The Insolvency Service’s statistics, much more needs to be done to turn the tide in respect of the billions in taxpayer funds lost to fraud and waste during the pandemic.
More recently, the Chancellor said that once appointed, the Covid corruption tsar will work with HMRC, the Serious Fraud Office and The National Crime Agency to examine questionable loans and grants to businesses, incorrectly claimed furlough scheme payments, and abuse of the ‘Eat Out to Help Out’ scheme.
It is understood that the process to recruit a Covid corruption tsar has already begun, and that the Chancellor believes the Treasury can recover a further £2.6bn.
The Chancellor’s focus on recouping as much money as possible lost to the public purse due to Covid-19 loan abuse may also lead to further resources being allocated to The Insolvency Service.
The corollary would be an increase in investigations, disqualifications, orders and undertakings for compensation, prosecutions, and convictions in connection with director misconduct.
How does an investigation by The Insolvency Service begin?
An investigation by The Insolvency Service typically begins with a request for further information or completion of a director questionnaire. They may also ask you to attend an interview.
Before providing information to The Insolvency Service, or going on record, it is important to seek legal advice at the earliest opportunity.
If you receive a letter from The Insolvency Service stating that they intend to recommend disqualification proceedings against you, it is critical that you seek legal advice as soon as possible.
If you are investigated by The Insolvency Service, Harrison Drury’s insolvency and regulatory teams are here to help, contact us on 01772 258 321.