Bounce Back Loans and Insolvency – Is Director Disqualification Automatic?

On Friday 24 June 2022, Abdulrazag Zagroba became the first person to be successfully prosecuted for Bounce Back Loan ('BBL') fraud and was sentenced to 24 months in prison. The Insolvency Service also secured an order disqualifying him from acting as a director for 7 years.

The court heard that Zagroba was sole director of Amigo Pizza (Manchester) Ltd, incorporated in January 2020. The company operated a pizza takeaway business in the Stretford area of Manchester until it was dissolved in October the same year; Zagroba’s application to dissolve the company was originally signed on 17 June 2020 but less than two weeks later, he applied for a BBL of £20,000, used that to buy himself a car and distributed the balance of the cash to his family living abroad. The company was dead long before it could ever make its first loan repayment!

That was a nailed on case. Most right-minded people will agree that individuals who misuse public funds in the form of BBLs should face the wrath of all available civil and criminal law consequences, such as:

• Financial recovery action by the failed company’s Liquidator.
• Director Disqualification under the Company Directors Disqualification Act 1986, where the Insolvency Service alleges the Director has engaged in ‘Unfit Conduct’.
• A Director Disqualification Compensation Order (‘DDCO’) from the Insolvency Service.
• Criminal Law investigation.

However, should these remedies apply in every case where a BBLs is left unpaid due to the insolvency of the borrower?

The answer has to be NO - not every company failure, following the taking of a BBL, should attract such dire consequences for the director. The insolvency may have occurred for a wide variety of reasons and businesses were encouraged to take BBLs, by their very nature, to get them through a very difficult trading period.

The majority of cases that I have dealt with are clear; either the BBL was genuinely applied for and used legitimately, or there was flagrant abuse, albeit perhaps not quite to the level demonstrated by Zagroba!

Where the difficult lies is in the grey areas; directors who took the BBL support in the spirit of how it was intended (to save their businesses) but somehow, when the dust has settled 18 months later, have unwittingly fallen foul of the rules. My role as Liquidator in these situations is to report the facts to the Insolvency Service, who make the ultimate decision as to what further action to take, if any.

I would never condone wrongdoing, but hope they focus their limited resources on those who intentionally defrauded the system.

To discuss this further, please contact Steve Elliott.