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Misled firms try to stop loan repayments

 Allium Law’s “Back British Business” campaign says it can help directors who are struggling to repay emergency credit taken out during the height of the pandemic because small companies were “misled” over the loans. 

Allium, owned by Steve Clark, a hedge fund financier, purchased specific Child & Child assets via pre-pack insolvency in 2019, with five equity partners from the failed company moving across to the “newco”, including the former co-owner Mo Hakim. 

For a fee of £550, Back British Business is offering to draft legal letters to banks for borrowers who want a write-off or reduction in liabilities or a set-off against their losses and says it will escalate complaints to the Financial Ombudsman Service and the government on borrowers’ behalf if necessary. 

The campaign, whose chief executive has dismissed comparisons with “ambulance-chasing PPI claims”, expects interest to pick up further when many borrowers begin making capital repayments next year. 

The government’s Insolvency Service recently banned three directors for abusing the scheme while three City workers were arrested last year amid an investigation into £6 million worth of bounce back claims. 

Allium, owned by a hedge fund financier and emerged from contentious pre-pack insolvency in 2019, says it has received interest from about 30,000 borrowers. More than 1,000 have taken the first step towards making a claim. 

The bounce-back scheme ran to March this year and provided loans of up to £50,000 to help businesses survive the impact of Covid-19. 

Mahmood said that if borrowers in action do not repay, “one of the key issues is one whether the government has the appetite to take us to court”. 

There had been fears that taxpayer losses on the scheme could be up to £26 billion, but initial indications from banks and credit rating agencies are that losses will be much more modest. 

The campaign is likely to be contentious, not least because the law firm behind it is linked to insolvency, which is expected to cost HM Revenue & Customs more than £2 million. At the time of the insolvency, the latter left six months after being fined £45,000, having admitted failings linked to the Panama Papers law firm Mossack Fonseca, which “led to a risk of large amounts of money being laundered”. 

So that bounce back loans could be provided quickly, businesses self-certified their application documents and lenders were not required to perform any credit or affordability checks. 

The debts are unsecured, so directors are not personally liable if their business goes under, but lenders must seek repayment of overdue loans before they call on the state guarantee. 

Second, the campaign argues that some borrowers were misled into wrongly believing that the state guarantee was for their benefit rather than to give comfort to lenders. 

“It’s important people are given the help to stay in business — that will benefit the state as they will remain economically active. 

Unsecured creditors were owed £5.4 million at the point of failure, including the tax authority, which had presented a winding-up petition against the company. 

    Tens of thousands of small business owners have shown interest in joining a law firm’s promotion that claims it could help them to escape or reduce liability on taxpayer-backed bounce back loans. 

Wasif Mahmood, chief executive of Back British Business, argues that businesses were potentially misled in two ways over the loans. 

“After 12 months, the banks will wash their hands of everything and say, we tried to get our money back, give us our guarantee. 

“The level of interest we’ve received shows there is a robust mandate. He argues that subsequent lockdowns damaged their ability to repay and “changed the legal basis of the loans being issued”. 

First, he says businesses that took the debt on after the first lockdown had been led to believe restrictions would last for a matter of weeks. Second, liquidators from PwC are investigating “a number of concerns regarding the directors’ conduct and [that of] other third parties have been brought to our attention by the company’s creditors”. 

The British Business Bank, which administers the bounce-back scheme, declined to comment. 

Child & Child went bust in the middle of 2019 after failing to sublet a 6,200 sq ft space it had taken on. The taxpayer underwrites the debts, so the state will cover banks’ losses if borrowers fail to repay.

Summarised www.sba.tax
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