Covid Fears Credit Fraud As Companies Dropped From Companies House Rise By 743%



The number of companies closing after being delisted from Companies House increased by 743% in the first quarter of 2021 compared to the same period in 2020.

Companies House exemptions increased to 39,601 in the first three months of 2021, up from 4,695 in the same period in 2020, according to new figures from auditing firm Mazars provided by City AM Today.

The stunning jump confirms fears of a wave of CBILS and BBLS loan fraud. Therefore, the government is proposing to expand the powers granted to the Insolvency Service to enable it to investigate and disqualify directors of dissolved companies.

A bill on ratings (coronavirus) and director qualifications (closed companies) is slated for a second reading in the House of Commons tomorrow and is expected to be passed by the end of the summer.

Not sold and not sold

To be struck out, the company cannot trade or sell any shares in the previous three months.

While many legitimate businesses will close their doors due to the pandemic, in many cases, companies are believed to close solely to avoid CBILS and BBLS payments.

The pressure of the pandemic, coupled with the speed of deployment of CBILS and BBLS, meant that many of the standard underwriting reviews were not carried out before lenders issued these loans.

The BBLS, which has provided loans of up to £ 50,000 to help the smallest businesses in isolation, is considered the most vulnerable to abuse.

The data shows that 80% of BBL applications were granted, with the vast majority in microbusiness with 10 employees or fewer.

OBR estimates that a whopping £ 22 billion in lending to BBLS alone will be lost to defaults and fraud. Apart from isolated cases of fraud, experts say there is likely a significant involvement in organized crime.

While the government ultimately pledged to guarantee almost the entire cost of the loans associated with the pandemic (80 percent in the case of CBILS and 100 percent for the BBLS), lenders may have to exhaust their repayment options before contacting the Treasury. for compensation for bad loans.

Companies restored

Some lenders, who suspect that write-offs have taken place to avoid redemption of CBILS and BBLS, have begun filing applications to reinstate these companies with Companies House in order to collect the debt.

What’s more, fraud experts are already at work trying to identify companies that have been inactive since receiving a coronavirus loan.

If the loans were secured by the personal guarantees of the directors of the company, lenders would be able to pursue these individuals directly.

“Even though some level of fraud was assumed in CBILS and BBLS, these excluded numbers suggest a worst-case scenario could be played out for some lenders,” said Michael Pallott, Mazars director of restructuring and contentious issues expert. insolvency investigation.

“Since the government is unlikely to pay creditors who cannot prove that they have actively used all available debt collection options, banks are now preparing to identify potentially thousands of loans in their books that could be in default,” Pallott said. City AM Today.

“Many of these loans will go to legitimate businesses that did not survive last year. However, when it comes to those who were less honest, it will be costly and time consuming to chase down bad debtors who never intended to repay these loans without the right tools, ”he added.


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