Bounce Back Loans: November 2022 news roundup

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As we’ve been reporting, the Insolvency Service’s recent press releases have been awash with director disqualifications and bankruptcy restrictions related to misuse of the Bounce Back Loan Scheme (BBLS).

November was a particularly busy month for such news, with ten separate announcements detailing a total of 137 years of director disqualifications and bankruptcy restrictions published.

Here’s a roundup of what was announced.

The consequences of being uncooperative

Beginning our November roundup is the most stringent punishment announced this month.

A thirty-four-year-old man from Middlesbrough has been handed a prison sentence of fifteen months, suspended for eighteen months, for his abuse of the Bounce Back Loan Scheme.

Ben Hamilton successfully applied for a Bounce Back Loan (BBL) in May 2020 for his business, Netelco Ltd. Once the loan funds had been paid into Netelco’s bank account on 14th May 2020, the following day, Hamilton filed to dissolve the company.

The company dissolution process dictates that creditors must be notified of the application within seven days. Hamilton failed to notify the institution that provided Netelco with the BBL – a criminal offence.

Initially, Hamilton refused to cooperate with the Insolvency Service investigation team, including non-attendance at an interview with the investigators. It took a restraining order on Hamilton’s bank accounts (under the Proceeds of Crime Act) to convince him to engage in the process, at which point he repaid the loan in full.

Julie Barnes, Chief Investigator at the Insolvency Service said: “This was a clear case of attempted fraud by a company director who thought he could abuse the Covid-19 financial support schemes and get away with it.”

Hamilton was sentenced at Teeside Crown Court on 15th November 2022 and ordered to pay costs of £2,500 in addition to the suspended sentence, having pleaded guilty to charges on 14th October at Teeside Magistrates’ Court.

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Restrictions on top of restrictions

Simon King, from Plymouth, was already subject to a five-year bankruptcy restriction for Bounce Back Loan abuse when he was handed a ten-year director disqualification effective from 7th November 2022 for further abuse of the scheme.

King’s bankruptcy restrictions relate to his false claim of a £50,000 BBL as a sole trader under the name Blackfriars Contracts Division – a loan he wasn’t entitled to.

An investigation has since found that King obtained two additional loans under the BBLS totalling £80,000, which is more than the £50,000 maximum allowed by the scheme.

King ran Blackfriars Contract Ltd, a printers in Plymouth, until December 2020 when the company went into liquidation with debts of over £230,000 including the full Bounce Back Loan amounts.

Mohammed Subhan ran a restaurant in Dudley through his company Zara Spice Limited, as well as a catering business called Thania Spice. He applied for his own bankruptcy in March 2022, with the Official Receiver appointed as his Trustee.

The Official Receiver found that Subhan had obtained £70,000 under the BBLS through his self-employment business, Thania Spice. Subhan exaggerated his turnover when applying for the loans. He was able to acquire a £50,000 loan, initially, by stating a turnover of £200,000. In reality, his turnover for the relevant period “was closer to £3,000 to £4,000” – fifty times less than he claimed.

Subhan went on to successfully apply for two more loans. He “withdrew more than half the funds in cash” and spent thousands on expenses which weren’t for the benefit of his business.

As a result of the findings, Subhan has been given an additional eleven years of bankruptcy restrictions.

“He posed a significant risk to creditors and eleven years of restrictions will severely curtail Mohammed Subhan’s ability to abuse his future lenders”, said Karen Fox, Deputy Official Receiver.

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More overstated turnovers

Directors overstating their company’s turnover for 2019 (the relevant period for the BBLS application) is a common theme in many of the cases reported by the Insolvency Service.

Anthony Killarney, from Brentwood, successfully applied for a £50,000 loan by stating his company’s turnover was £600,000. However, the turnover for K11 Developments Ltd – Killarney’s property development company – was actually £0 for 2019 and for the two previous years. The company went into liquidation at the end of 2021, owning nearly £400,000. Killarney has been disqualified as a director for eleven years.

Shafiqur Rahman claimed a £25,000 loan for his sports coaching business in Manchester – “more than eleven times the money to which the business was entitled”. Rahman also spent £20,000 of the loan, paid to his company Aspire Sports Coaching & Partners Ltd, “without being able to prove it had been used to support the company.” He has received an eleven-year ban.

Nija Bite Limited director Malcolm Forbes obtained the maximum £50,000 BBL by claiming a turnover of £225,000. However, the takeaway and mobile food stand business’s actual turnover “was closer to £24,000”, which would have made Forbes’ company eligible for a £6,000 loan. Forbes has been given a ten-year director ban.

Similarly, Avin Habash falsely stated the turnover of his takeaway business, Hot Spot Liverpool Limited, was £200,000 – around double the actual figure – when applying for a £50,000 BBL. Habash has been banned for ten years, as well.

Michael Hansen claimed a £160,000 turnover for his company, MH Property & Engineering Services Limited, when it was, in fact, £8,294. Hansen obtained a £40,000 loan under the BBLS, rather than the £2,000 (approx.) loan his company was entitled to. Further compounding the situation, Hansen transferred £24,600 of the loan monies to himself over a ten-month period and “was unable to show investigators that the money had been used for the economic benefit of the company.” He, too, has received a ten-year director disqualification.

Jason Meads obtained £37,500 from two Bounce Back Loans by falsely claiming the turnover of his business, Hodl Clothing Limited, was £150,000. In reality, the company’s 2019 turnover was nil. He has been banned for ten years.

Another takeaway owner, Muhammad Rais from Leicester, stated his company’s turnover was £200,000, entitling him to the full £50,000 BBL. However, Lokma BBQ Ltd’s actual turnover was approximately £74,000, meaning Rais received more than twice the amount he should have from the scheme. “Rais has agreed with the liquidator to re-pay £8,000 of the money owed through monthly installments.” He has been disqualified for nine years.

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Non-business use

Another term of the Bounce Back Loan Scheme was that funds must be used only for the economic benefit of the company obtaining the loan.

Kamil Ozkan ran Martinos Italian Kitchen in Peterlee through the company Papa Peterlee Limited. Ozkan legally obtained a £50,000 Bounce Back Loan, but transferred around £37,500 of the loan monies to his personal account. As a result, Ozkan has received a six-year director disqualification.

Lee Mankelow, from Nottinghamshire, also claimed a £50,000 loan, which his company, Wolf Timber Ltd, was eligible for. However, Mankelow transferred all of the £50,000 to a former director of the business, the day after receiving the loan funds. He, too, has been banned for six years.

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No eligibility

Some directors applied for Bounce Back Loans for businesses that were not even trading at the time of the Covid-19 pandemic.

Thirty-one-year-old Lavinia-Larisa Mociar obtained a £50,000 loan for L&M Construct Ltd, based in Harrow, London. Her company had ceased trading a year before she applied for the BBL.

In addition, Mociar overstated the company’s 2019 turnover and withdrew the loan funds as cash – both against the terms of the scheme. She has been disqualified for eleven years.

David Okot has also been banned for eleven years, after he applied for a £50,000 loan for B&S News Ltd which traded as B&S Newsagents in Lewisham, London, but closed down in January 2020 – six months before Okot applied to the BBLS.

And finally, Selvendran Ramar, from Southampton, obtained a £45,000 Bounce Back Loan in July 2020. He stated the turnover of his business, SJSA Ltd, was £180,000 a year. To be eligible for the scheme, businesses had to have been trading on 1st March 2020. SJSA Ltd was not incorporated until 30th March 2020. And, by the time of Ramar’s application, the company had made only £5,500 in three months.

Further breaking the terms of the scheme, Ramar then transferred £35,000 of the loan to his personal account and the remaining amount to a family member.

Ramar has been disqualified as a director for eleven years, and the Liquidator – Begbies Traynor Group – has so far recovered £25,000 of the loan.

Insolvency and debt investigations

Seeing the whole picture in insolvency and debt cases is key to maximising returns to creditors. For more information on how ESA Risk can help to identify hidden assets or locate targets who have gone to ground, contact Mike Wright, Investigations and Risk Management Consultant, at mike.wright@esarisk.com, on +44 (0)343 515 8686 or via our contact form.

You can also learn more from our Insolvency & Debt Investigations brochure:

 

Download your copy

 

Fraud ‘victim checklist’ a positive step for banking industry, but it doesn’t go far enough

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Last week, the Joint Fraud Taskforce – relaunched last year, as I reported at the time – rolled out a ‘victim checklist’ for the banking industry to “ensure[…] that consistent guidance and support is provided to victims… when they report a fraud.”

The new checklist was set out before the Security Minister Tom Tugendhat, who chairs the taskforce, as a meeting on Monday 21st November 2022. Mr Tugendhat calls fraud “a hidden tax on people across our country” and he believes that “the banking industry has risen to [the] challenge and set a clear benchmark”, which he wants to see repeated for other industries.

By following the victim checklist, staff at banking institutions “will provide victims with the same guidance on”:

  • Reporting fraud crimes
  • Getting their money back
  • Accessing additional advice and support.

Development of a checklist was one of the ‘pledges’ banking industry members of the taskforce made in the Retail Banking Charter.

David Postings, Chief Executive of UK Finance, said: “Fraud has a devastating impact on victims, and the money stolen funds serious organised crime. The industry’s primary focus is on stopping these scams happening in the first place and banks have invested heavily in advanced technology to protect customers.”

James O’Sullivan, Policy Manager at the Building Societies Association said:

“This checklist will ensure that consumers receive the same guidance when they report a fraud on their bank or building society account, irrespective of who their provider is. It’s a helpful step which is part of the bigger and ever evolving fight against fraud and the criminals that perpetrate it.”

Looking beyond the new victim checklist

A “helpful step” is a fitting description of the taskforce’s development and adoption of the victim checklist.

Having worked in the fraud departments of various retail banks in the UK, I know first-hand that their levels of support, guidance, preventative measures and refunds provided to victims of fraud have differed wildly.

While it is, of course, a positive step that the banking industry has led on benchmarking this fraud victims checklist, it needs to be implemented consistently to be truly effectively.

Personally, I would like to see this work taken a step further – I believe the checklist should be incorporated into mandatory banking regulations, which would mean fraud victim support would be given the focus it deserves. As part of mandatory regulations, the effectiveness of the checklist would be measured continually by regulators and the Bank of England.

Most importantly, making the victim checklist part of banking regulations would mean that it would have to be adopted by every banking institution and not only those signed up to the taskforce and the charter.

This extra step would demonstrate true support for the victims of fraud – and be an even better ‘good news’ story for the taskforce and the Home Office to promote.

Financial fraud advice and support

If you need advice on any aspect of financial fraud – from fraud prevention to the recovery of funds lost to fraud – please get in touch with Ali Twidale, Banking & Financial Fraud Consultant. Ali is a Certified Fraud Examiner, and she will be happy to review your situation and put in place a bespoke plan of action to address your needs.

You can reach her at ali.twidale@esarisk.com, on +44 (0)343 515 8686 or via our contact form.

Black Friday 2022: Stay cyber-safe

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For many, Black Friday 2022 marks the official start to the Christmas shopping season and, excitingly, many retailers announce time-limited sales that promise huge savings to consumers. But it’s also the prime time for cyber criminals to cash in, too.

Some digital threats to watch out for on Black Friday 2022

Phishing attacks

While consumers rush to grab themselves a bargain, they may get caught out in a phishing scandal. Phishing links commonly lead to fake login pages, prompting victims to authenticate themselves on their web account. For instance, victims may think they are logging into their favourite retailer account, when, really, they are handing their username and password over to an attacker, who can use it to their advantage later. Although this affects users directly, it also negatively impacts the retailer’s reputation, which can be difficult to recover.

PayPal – a platform used to handle payments by many online retailers – is one of the most commonly mimicked websites. It is not only the retailer’s site that you need to be able to trust, but third-party applications used by that site, as well.

Malware  

Malware (as the portmanteau suggests) refers to any malicious software designed to harm a computer system by tracking user activity, hijacking functionality or stealing, deleting or encrypting data. Most malware enters your systems via email (widely reported at more than 90%). Statista reports that there were 2.8 billion malware attacks in the first six months of 2022 – more than half the number reported in the whole of 2021.

Malware is constantly proliferating and changing. AV Test describes how the total amount of malware has grown every year since 2008 (their first data point), and that 2021 saw the largest influx of new malware of any year on record.

This should be seen as a high-risk Black Friday cyber threat.

Formjacking

Formjacking is a form of ‘Magecart’ where malicious code is injected into the checkout forms of a website and can go undetected for a long time. Cyber criminals then hijack web forms to steal personal and payment information from shoppers.

Ransomware  

Ransomware encrypts files, so they are made inaccessible to the owner. The cyber criminal then demands a ransom payment in return for releasing the locked files. Ransomware occurs when legitimate ads are hacked (‘malvertising’), or through phishing emails and exploit kits. This will have consequential impact on consumers and retailers/businesses.

Not being prepared enough for cyber threats is a threat

A staggering 3 in 4 IT leaders expressed a lack of confidence in their company’s IT security posture and saw room for improvement. Despite this, just 57% of companies conducted a data security risk assessment in 2020 and businesses need to up their cyber security efforts to reduce these risks and minimise the impact of an attack.

How can you reduce the risk of cyber threats on Black Friday 2022? 

The above attacks take place daily and are not specific to the holiday season or large events like Black Friday, but the volume and frequency of these attacks significantly increase during these times, as more consumers make purchases online.

Being aware of these threats is a step closer to preventing cyber attacks on Black Friday 2022 and during the holiday season to come. Businesses should balance their investments in security awareness training for employees and putting robust security measures in place that can help to scan their systems for suspicious activity. Similarly, consumers need to be better educated and made aware of potential threats.

If you find yourself the victim of a cyber incident, ESA Risk can help you with your response to the attack and to make you cyber-secure in the future, through the design and execution of a strong cyber security plan. Reach out to us at advice@esarisk.com, on +44 (0)343 515 8686 or via our contact form to find out more.

 

Download: ESA Risk Special Report: The Cyber Threat Landscape 2022

ESG, greenwashing and the implications for investor risk management

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Environmental, social and governance (ESG) criteria have become an important tool for evaluating investment risks amid a growing regulatory push towards increasingly cost-effective clean energy.

Those risks include litigation, reputational harm and falling share prices arising when ‘sustainable’ funds fall short of their promises.

Research published by Morgan Stanley in 2018 indicated that 78% of investors identified risk management as “an important application for ESG data”. This is partly because ESG, unlike its predecessor corporate social responsibility (CSR), provides reporting frameworks for tracking compliance.

Consequently, funds invested in ESG assets are expected to exceed $50 trillion by 2025 – up from $22.8 trillion in 2016 to represent more than a third of total, global managed assets.

Nevertheless, there are understandable concerns that ESG is being abused by corporations and fund managers as a vehicle for greenwashing.

ESGreenwashing

Greenwashing involves duping investors and environmentally conscious consumers with exaggerated, outright false or otherwise misleading marketing claims about the sustainability of a company’s products, services or operations.

Recent allegations of greenwashing include unfounded claims about the sustainability of clothing manufacture, tree-planting schemes that fail because of slapdash planting practices, and even the world’s twenty biggest ESG funds holding investments in fossil-fuel producers.

While greenwashing undoubtedly occurs outside of ESG contexts, critics of ESG frameworks have claimed their shortcomings make ESG a particularly useful vehicle for corporate deception.

These claims are not entirely without merit.

A relatively recent phenomenon, ESG can potentially empower deliberate and unintentional greenwashing alike for want of adequate regulation, sustainable finance expertise, ‘gold standard’ reporting frameworks or a clear enough definition of ‘sustainable’ investments.

Add to that the expense and complexity of going green in many sectors, plus the regulatory incentives and penalties designed to facilitate the shift to a net zero economy, and you have the perfect recipe for overblown marketing messages.

Many investors are thankfully, it seems, aware of this problem. Research from Quilter found that misrepresented investments were the biggest ESG worry for 44% of investors.

“Greenwashing threatens to undo all the good work and progress that has been made so far in responsible investing,” said Eimear Toomey, head of responsible investment at Quilter Investors. “It is crucial that fund groups invest in the way that they say they will, so it is important investors hold them to account on this.”

Regulatory crackdown

The last two years have seen a flurry of ESG-promoting and anti-greenwashing regulatory moves both sides of the Atlantic.

The UK government’s 2021 ‘Roadmap to sustainable investing’, for instance, sets out how financial organisations will have to substantiate their ESG claims under the Sustainability Disclosure Requirements (SDR). Similarly, the Competition and Markets Authority (CMA) published a Green Claims Code in the same year that said firms making green claims “must not omit or hide important information” and “must consider the full life cycle of the product”.

There are also proposals afoot to bring ESG ratings agencies under the ambit of the Financial Conduct Authority (FCA), which is due to consult on SDR for asset managers, certain FCA-regulated asset owners and the sustainable labelling system.

A similar agenda to the UK has been pursued in the last two years by the EU, through the Sustainable Finance Disclosure Regulation (SFDR), Sustainable Finance Roadmap and Renewed Sustainable Finance Strategy.

Over in the US, meanwhile, the Securities and Exchange Commission (SEC) has recently proposed ESG disclosure requirements for funds and advisers, and created an ESG enforcement task force.

A globally significant development, meanwhile, was the launch of the International Sustainability Standards Board (ISSB) in 2021 with a mission to establish baseline standards for evaluating sustainability-related investment risks and opportunities.

Some experts anticipate that this regulatory drive could herald a wave of litigation against firms for misrepresentation of ESG products. This presents investment risks given “greenwashing allegations are highly publicised and lead to a subsequent fall in share price”, lawyers at Farrer and Co have noted.

Due diligence

ESA Risk’s Mike Wright has written previously that “due diligence is a must to ensure you’re investing in a responsible, sustainable business”. With ESG definitions so subjective, he continued, “it’s important to undertake independent research, rather than to always rely on the opinion of an investment manager”.

According to an FT Adviser piece from Maria Lozovik, a partner at Marsham Investment Management, that research should have a hardheaded focus on an investment’s likelihood of delivering market share growth and strong rates of return, “taking into account strong government support and subsidies” for sustainability.

Essentially, the implication is that ESG or climate-related marketing claims are more likely spurious if they don’t appear to be in the firm’s best interest financially.

Indeed, ESG score provider MSCI admits its ratings aren’t “a general measure of corporate ‘goodness’”, but “measure a company’s resilience to financially material environmental, societal and governance risks”.

It also notes that a company’s ESG score does not precisely reflect its carbon footprint. The financial risks presented by greenhouse gas emissions will influence the scores of power and steel companies much more significantly than healthcare firms, for which “the most financially relevant risks lie elsewhere”, says MSCI.

While useful – and perhaps increasingly so given regulatory developments – ESG alone won’t give a definitive picture of the climate-related risks investors are exposed to.

Investors should therefore research more broadly when evaluating a company’s or fund’s green credentials. This should include watching out for significant legal action or further regulatory developments and considering the implications for their investment strategy – perhaps with the help of an advisor who specialises in ESG.

If investors and their advisers can successfully sidestep greenwashing threats, then genuinely ‘responsible’ investments can potentially offer enormous returns when you consider the regulatory incentives and the innovation they spur. As Square Mile chief distribution officer Steve Kenny told FT Adviser, the money needed to make the economy “net zero is off the scale”, so the companies driving this transformation “are going to be massive”.

How ESA Risk can help

Due diligence is an area where we possess the expertise and experience to help you and your business.

For advice on private investing or conducting due diligence, contact Mike Wright, Risk Management & Investigations Consultant at mike.wright@esarisk.com, on +44 (0)343 515 8686 or via our contact form.

Man jailed for eight months for breaking terms of bankruptcy

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Sukhi Sanghera, from Leamington Spa, has been sentenced to eight months in prison on four counts of bankruptcy offences.

Sanghera concealed a rental property from the Official Receiver and his bankruptcy trustees, after being made bankrupt in August 2017 owing more than £140,000.

The Coventry property brought Sanghera a rental income of £1,900 per month, which he hid from his trustees to avoid paying the money out to his creditors.

Sentencing the fifty-year-old – also known as Sukhwinderjit or Sukhwinder – at Warwick Crown Court on 27th October 2022, the judge, HHJ Berlin, described Sanghera as a “profoundly flawed and dishonest man….who showed a flagrant disregard for the law and authorities.”

Sanghera had an obligation to disclose all his assets to his trustees under the terms of his bankruptcy. The Official Receiver was initially appointed trustee before the administration of Sanghera’s affairs passed to other trustees.

Two years in to Sanghera’s bankruptcy, the Official Receiver requested further restrictions against him “[d]ue to the risk he posed to creditors”. Sanghera admitted that he failed to tell the Official Receiver about the property, of which he was the sole owner. As a result, a ten-year bankruptcy restrictions undertaking was put in place.

Glenn Wicks, Chief Investigator for the Insolvency Service, said:

“At multiple points Sukhi Sanghera had the opportunity to be honest and disclose to his trustees that he benefited from a rental property. Instead, Sukhi Sanghera went to great lengths to conceal the property in Coventry through fraud and deception to avoid paying his creditors what they were owed.”

Sanghera was sentenced to eight-month prison sentences on all four charges under the Insolvency Act 1986. He will serve the sentences concurrently.

Wicks continued: “The courts have recognised the severity of Sukhi Sanghera’s actions and his custodial sentence demonstrates the risks people take if they don’t declare all their assets when in a bankruptcy process.”

Insolvency and debt investigations

Seeing the whole picture in insolvency and debt cases is key to maximising returns to creditors. For more information on how ESA Risk can help to identify hidden assets or locate targets who have gone to ground, contact Mike Wright, Investigations and Risk Management Consultant, at mike.wright@esarisk.com, on +44 (0)343 515 8686 or via our contact form.

You can also learn more from our Insolvency & Debt Investigations brochure:

 

Download your copy

 

Two companies wound up for very different scams

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Fraudulent activity through limited companies takes on many guises. On 27th October, the Insolvency Service published details of two cases that have resulted in the companies involved being wound up by the Hight Court. The cases are very different. One saw the fraudulent company scam its suppliers by purchasing goods on credit without ever paying for them. The other was part of a global cryptocurrency investment scam.

Nobleread Ltd – credit scam

Nobleread Ltd, trading as NB Construction and NB Wholesale, created fake directors through identity theft and used those profiles to apply for credit with construction goods suppliers. From February to April 2021, the company ordered building materials, vacuum cleaners, boilers, microwaves and other goods using their credit facility with suppliers.

The goods were then sold on at a reduced price for cash, with the company’s representatives approaching people on construction sites and at builders’ merchants. The Insolvency Service reports that, “in most cases goods were shipped directly to site by the trade supplier.” NB Construction would then collect the cash payment in person. The company also had goods delivered to a warehouse in Essex under their NB Wholesale brand.

Nobleread Ltd’s suppliers were left more than £60,000 out of pocket, when the company failed to pay its debts.

Mark George, Chief Investigator at the Insolvency Service, said: “Nobleread has gone about its business in a reprehensible manner and those behind it have gone to great lengths to hide their identities. Suppliers should always do due diligence on companies before agreeing any credit facilities, and check the integrity of any trade references in particular.”

PGI Global UK Ltd – cryptocurrency scam

PGI Global UK Ltd is part of the Praetorian Group International Trading Inc., which has been subject to a seizure warrant in the US.

PGI appears to have been involved, mainly, in the sale and purchase of cryptocurrency. The company promised investors “returns of up to 200%, but these never materialised and “investors were unable to withdraw the funds they had invested.”

Between July 2020 and February 2021, the company received over £600,000 from investors. Outgoings from PGI’s accounts included nearly £200,000 paid to personal accounts and “a £10,000 payment to a luxury department store.”

The sole director of PGI Global UK Ltd refused to cooperate with the Insolvency Service’s investigation.

Mark George said: “Individuals and businesses that operate under the protections afforded by limited liability are, as a consequence, required to comply with the requirements of the Companies Act. This case highlights that where we have reasonable concerns about the trading practices of a company the court will take a dim view of any failure to co-operate with a statutory enquiry…”

In the public interest

Both companies were wound up by the High Court, with the court agreeing that closing down the companies was in the public interest. In the case of PGI Global UK Ltd, the court also cited the company’s “trading with a lack of commercial probity, and failure to comply with statutory obligations and lacking transparency.” Nobleread Ltd was described as following “objectionable trading practices.”

In both cases, the Official Receiver has been appointed liquidator and will look to recover funds for creditors.

Due diligence

Sadly, we saw an increase in scams at the height of the Covid pandemic, as fraudsters took advantage of others’ vulnerability. Many businesses and investors focused on survival or maximising investments, rather than completing due diligence exercises – and the fraudsters capitalised.

At ESA Risk, as part of our fraud consultancy, we can perform initial due diligence on suppliers / business partnerships / investment companies, or help to trace assets and funds if these have been fraudulently stolen.

Contact Ali Twidale – a Certified Fraud Examiner – at ali.twidale@esarisk.com, on +44 (0)343 515 8686 or via our contact form to see how we can help you or your business.

Bounce Back Loans: October 2022 news roundup

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As we’ve been reporting, the Insolvency Service’s recent press releases have been awash with director disqualifications and bankruptcy restrictions related to misuse of the Bounce Back Loan Scheme (BBLS).

October was another busy month for such news. Here’s a roundup of what was announced.

Bounce Back Loan eligibility questions and unexplained transactions

Our first story actually broke on the last day of September.

Southampton-based director, Marian Daniel Clipici, has been banned from running companies for seven years for “failing to keep adequate accounts while his business was trading.”

The Romanian national appears to have been involved in a number of companies including a food shop and a construction business, Dahlial Limited. Dahlial Limited traded from November 2017 to September 2021, before going into liquidation, which led to an Insolvency Service investigation after the liquidator “identified a number of concerns”.

At the point where the company entered insolvency proceedings, Dahlial Limited owed £60,396, including more than £7,000 in unpaid tax and £40,000 against a Bounce Back Loan (BBL). Clipici’s lack of record keeping meant he was unable to prove that the company was eligible for the loan, nor could he explain satisfactorily that the loan funds were used to benefit the business. Clipici withdrew £30,000 from his business’s bank account in the four months following the Bounce Back Loan payment in May 2020, with no evidence that the money was used to pay “subcontractors and business expenses”, as he claimed.

As well as the BBL irregularities, “Clipici was unable to account for more than £530,000 paid into the business bank account” over a two-year period and for a similar amount of outgoings.

Lawrence Zussman, Deputy Head of Insolvent Investigation at the Insolvency Service, said: “Maintaining adequate company accounting records is a statutory requirement for all directors, and is vital to ensure company transactions are legitimate.”

In a similar case, Abul Kalam, from Birmingham, has been disqualified as a director for seven years, as he was unable to explain his Pembroke restaurant’s income and expenditure totalling more than £400,000.

The bank account for his company, Choose Chilli Ltd, showed income of £178,000 and outgoings of £241,000 between December 2019 and July 2021. Kalam was unable to produce “adequate invoices or records to verify the amounts”, with the large sums of money appearing particularly suspicious as the period included Covid restrictions and lockdowns which would have impacted his restaurant, Mehfil’s.

In addition to the £178,000 mentioned, Kalam successfully applied for a £25,000 Bounce Back Loan in 2020 and a £10,000 top-up in March 2021. The forty-eight-year-old was unable to demonstrate that the loan funds had been used to benefit his business. The loans were part of around £70,000 the company owed when it went into voluntary liquidation in July 2021.

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Overstated turnover

Businesses were able to borrow up to a quarter of their 2019 turnover (capped at £50,000) under the Bounce Back Loan Scheme.

Monica Coyle, from Kilmarnock, ran a health and wellbeing company – Positive Pulse Limited – during the Covid pandemic, offering “health checks to employees of businesses.” She received a £30,000 Bounce Back Loan after falsely declaring the company’s turnover as £130,000 in her application – a 2,500% increase on the true figure of £5,000.

Additionally, more than £26,000 of the loan was spent “on personal use.”

As a result, Coyle has received a ten-year ban from holding company directorships.

Insolvency Service Investigation Manager Steven McGinty said that Coyle “exploited the [Bounce Back Loan] scheme and took taxpayers’ money during the pandemic which she knew she was not entitled to.”

Similarly, Vicki Holland and Darren Trutt, from Harlow in Essex, have been disqualified for nine years and seven years respectively for overstating the turnover of their business, Crepe Heaven Ltd, when applying for a £20,000 Bounce Back Loan.

Holland claimed that the company’s turnover in 2019 was £100,000 – more than seven times the actual amount of £13,000.

As co-director, Trutt has been banned “for his part in allowing Crepe Heaven to overstate its turnover on the BBL application.”

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Twelve-year ban for director who bought house with loan funds

The longest ban on this month’s list is reserved for a property director who obtained three Bounce Back Loans and used the funds to purchase a house, which he then sold on, pocketing the cash from its sale. Brendan Gaughan has received a director disqualification of twelve years, as a result.

Gaughan was director of Gaughan Group Ltd, Gaughan Property Ltd and Rentl Property Ltd, all incorporated in February 2020. The companies did not start trading until April 2020, meaning they were ineligible to receive funds under the BBLS, which required companies to have been trading on 1st March 2020.

Despite that, Gaughan was able to take out Bounce Back Loans for each of his three companies. The three loans totalled £135,000.

The Glaswegian moved all the funds into one account and bought a property worth around £160,000 with the money. Less than a year later, in March 2021, he sold the same property for around £140,000, and transferred to his personal account £100,000 of the proceeds.

Steven McGinty, Investigation Manager at the Insolvency Service said: “Bounce Back Loans were made available for trading companies adversely affected by the pandemic. Brendan Gaughan should have known his companies weren’t entitled to the loans, yet he took them anyway and used the funds for personal gain.”

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Company wound up for Bounce Back Loan Scheme abuse

Finally this month, Keysholders Ltd has been wound up by the High Court for abuse of Covid-19 support schemes including Bounce Back Loans.

Applications were made on behalf of the company – not always successfully – to the Job Retention Scheme and the Coronavirus Business Interruption Loan Scheme, as well as the BBLS.

The company did obtain a Bounce Back Loan of £40,000 in May 2020, having stated its 2019 turnover was more than three times the actual amount (£200,000 instead of £65,000). The firm had been dormant since March 2019, too, therefore it was ineligible for the scheme in the first place.

By August 2020, Keysholders’ 2019 turnover was further inflated to £550,000 (more than eight times the true figure) in the next – unsuccessful – application, this time to the Coronavirus Business Interruption Loan Scheme for £250,000.

A few months later, the company obtained a grant of £20,000 through the Job Retention (‘furlough’) Scheme. Employment contracts show that the staff member this grant related to was employed after the date that would have made them eligible for the scheme, however.

The sole director when Keysholders Ltd was wound up in June 2022 (the case has only now been publicly reported by the Insolvency Service) was Olayinka Adediran.

The Official Receiver has been appointed Liquidator of the company.

Insolvency and debt investigations

Seeing the whole picture in insolvency and debt cases is key to maximising returns to creditors. For more information on how ESA Risk can help to identify hidden assets or locate targets who have gone to ground, contact Mike Wright, Investigations and Risk Management Consultant, at mike.wright@esarisk.com, on +44 (0)343 515 8686 or via our contact form.

You can also learn more from our Insolvency & Debt Investigations brochure:

 

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Creditor bankruptcy and liquidation petition deposits to rise from 1st November

Posted on by Admin Admin

From Tuesday 1st November 2022, the up-front payment needed to file a creditors’ bankruptcy petition or a company liquidation (winding-up) petition will increase.

The bankruptcy petition deposit will rise from £990 to £1,500, and the winding-up petition deposit will increase from £1,600 to £2,600.

This is the first change to fees since April 2016, with the Insolvency Service citing the drivers behind the increase as a “historically low level” of insolvency case numbers and “insufficient asset values to recover the administration costs” in the “majority” of other cases.

In announcing the fee rise, the Insolvency Service went on to say that “[t]he deposit increase will enable the Insolvency Service to continue to administer and investigate insolvencies effectively, maximising outcomes for creditors whilst mitigating the risk of cost recovery being passed on to the taxpayer.”

There will be no change to the deposit fee where an individual applies for their own bankruptcy.

According to the Insolvency Service, deposits go some way towards funding preliminary work undertaken by an Official Receiver on each case.

These increases are not insubstantial – around 50% for bankruptcy petitions and more than 60% for company winding-up petitions – and they are likely to lead to changes in the way that creditors assess their debt recovery options.

In particular, understanding the asset profile of a debtor – i.e. whether they own recoverable assets that can cover the value of the debt – will take on further importance, as will the value of the debt.

The debt thresholds for issuing petitions are relatively low. While petitions can be a useful tool in a creditor’s debt recovery strategy, those which develop into full insolvency proceedings bring various costs on top of the petition deposit. With the increased deposit, the total debt value needed to make insolvency proceedings worthwhile financially will increase also.

In view of the rising costs and clients not wanting to throw good money after bad, ESA Risk are often instructed to identify if the debtor or debtor company has any assets which the creditors will be able to make a recovery from. Depending upon the complexity of the matter, this may be a more cost-effective option than pushing a debtor into insolvency and winning a pyrrhic victory when there might be no assets.

Asset tracing services from ESA Risk

When it comes to tracing assets, we are the experts. ESA Risk’s team will deliver concise but comprehensive results which will enable you to make the decision on which way to proceed. With a network of trusted partners covering every part of the world, our investigation capability – and therefore yours – is truly international.

To instruct us on an investigation or for more information on our asset tracing services, contact Mike Wright, Risk Management & Investigations Consultant at mike.wright@esarisk.com, on +44 (0)343 515 8686 or via our contact form.

Download our Asset Tracing brochure to read more:

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How to safeguard company data when employees work remotely

Posted on by Admin Admin

By guest author Sharon McDougall of Scotland Debt Solutions.

Without safeguards in place companies face the prospect of having information stolen by hackers, or being held to ransom for their most sensitive data. So what can businesses do to protect themselves when employees work from home or from a remote location?

Create a cyber security policy

A strong cyber security policy can provide the background to the dangers of a data breach, and by ensuring all employees read and sign the policy they take greater ownership of the issue.

It should include the protocols to be followed by remote workers, and the resources available to employees to help them observe the policy, so all fully understand what is expected of them.

Cyber security training

Regular training events keep staff up-to-date on current cyber security issues, whilst also providing them with the awareness and knowledge to recognise and deal with non-standard occurrences when they’re working remotely.

Regular training events help employees to understand the importance of cyber security for their employer, and crucially, how to prevent a data security breach by proactively keeping hackers at bay.

Use a VPN

Connecting to an unsecured Wi-Fi network whilst working remotely is just one instance where company data is placed at risk. Using a Virtual Private Network, or VPN, provides a secure connection and hides internet activity by encrypting data.

Although convenient, public Wi-Fi networks in locations such as coffee shops and restaurants are known to be risky from a security point-of-view, and particularly dangerous for businesses holding sensitive data.

Use password management software

Creating strong, complex passwords, and changing them regularly, is paramount in the fight against hackers. Password management software can organise and simplify employee logins, and may be used across different types of device.

Email, banking, and social media logins are offered another layer of protection against security breach, and employees can gain more confidence that they’re logging in safely to the sites they need for work.

Multifactor identification

Multifactor authentication provides various levels of security for company data. It could require employees to receive a text message with a unique code, for example, or to answer a security question, or perhaps receive a phone call to confirm their identity.

For organisations or environments that are at particularly high risk, biometric data can be used to bolster data security. This might involve facial or voice recognition, or fingerprint scanning.

Back up files and create restore points regularly

Cloud storage provides a central location for employees to upload files securely. By regularly creating backups, hackers are also less likely to be able to successfully hold the business to ransom for vital information.

Use antivirus, anti-malware, and a firewall on all devices

Anti-malware and antivirus software, and a firewall, should be installed on all devices used by remote workers. All software needs to be regularly updated to the current version so that files and emails can be reliably scanned for viruses.

Working remotely with anti-malware constantly running in the background on all work devices further protects the company from malicious software, and can quickly detect and remove it as necessary.

If companies choose to ban the use of personal devices for work purposes they could make it part of their formal cyber security policy, particularly if they believe they’re at high risk of a security breach.

A multi-layered approach safeguards commercial data and protects businesses from unrelenting attempts by cyber criminals to hack their information, but awareness and a clear understanding of the issues is the first step in thwarting their plans.

Remote worker cyber security support from ESA Risk

At ESA Risk, we offer a broad range of cyber security services that can help you secure systems and data, become more cyber-aware, identify breaches, and prepare for and respond to attacks.

For advice and support on making your business cyber-secure, including remote worker cyber security, please contact us at advice@esarisk.com, on +44 (0)343 515 8686 or via our contact form.

 

Free download: The Cyber Threat Landscape 2022 Special Report

 

This article was written by guest author Sharon McDougall of Scotland Debt Solutions.

Bankrupt who breached terms given suspended sentence

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Daniel Ross Patchett has been sentenced to two hundred hours community service and twenty months imprisonment, suspended for eighteen months, for acting as a company director while subject to bankruptcy restrictions.

Thirty-four-year-old Patchett was an owner and director of DRP Distribution Ltd until his bankruptcy in February 2018. He subsequently resigned from his role in the business, leaving his wife as the company’s sole director.

However, an Insolvency Service investigation found that Patchett had “continued to act in the management of the company in 2018” by, for example, chasing unpaid invoices and corresponding with the company’s accountants. Some of DRP Distribution’s suppliers were under the impression that Patchett was still a director of the company.

During his bankruptcy, Patchett received more than £30,000 from the business and withdrew in cash £28,000 from the company’s bank account.

In addition, he concealed his income to avoid paying his creditors – quickly ceasing agreed monthly payments of £400 after telling the Official Receiver that he could pay only “a token gesture amount” as he had stopped working at DRP Distribution.

Patchett was sentenced on 28th September 2022 by Her Honour Judge Sjölin Knight at Lincoln Crown Court. His sentence comprised twelve months for offences under section 356 of the Insolvency Act (regarding false statements) and eight months for offences under section 11 of the Company Directors Disqualification Act, which states that:

“It is an offence for a person who is an undischarged bankrupt to act as director of, or directly or indirectly to take part in or be concerned in the promotion, formation or management of, a company, except with the leave of the court.”

DRP Distribution was an order fulfilment company, active from 2016 to 2019, providing various services for third parties who sold products through online platforms.

“Daniel Patchett was fully aware both of his responsibility not to act as a director of a limited company given he was bankrupt, and also of his duty to disclose all assets and details of his income to the Official Receiver”, said Julie Barnes, Chief Investigator for the Insolvency Service.

“He chose to flagrantly disregard these obligations for his own personal gain, leaving creditors out of pocket. We will always prosecute such cases to protect the business community and the public from financial harm.”

Patchett, of Market Raisin in Lincolnshire, told the court “he had been suffering from gambling addiction.” He pleaded guilty of acting in the management of a company whilst an undischarged bankrupt.

Insolvency and debt investigations

Seeing the whole picture in insolvency and debt cases is key to maximising returns to creditors. For more information on how ESA Risk can help to identify hidden assets or locate targets who have gone to ground, contact Mike Wright, Investigations and Risk Management Consultant, at mike.wright@esarisk.com, on +44 (0)343 515 8686 or via our contact form.

You can also learn more from our Insolvency & Debt Investigations brochure:

Download the brochure
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