Mishcon de Reya page structure
Site header
Main menu
Main content section
mishcon de reya interior lights

The Bounce Back Loans Scheme - what is being done to recover funds misappropriated by fraudsters?

Posted on 26 September 2022

This article was first published in ThoughtLeaders4 FIRE Magazine.


The National Audit Office (NAO) has estimated that, of the £47 billion lent under Her Majesty's Government's (HMG's) Bounce Back Loan Scheme (BBLS), approximately £4.7 billion was obtained fraudulently.

HMG is now taking steps to prosecute wrongdoers. However, what is being done to recover funds misappropriated by fraudsters?

What was the Bounce Back Loan Scheme (the BBLS)?

The BBLS was designed to enable small and medium sized businesses to access finance quickly during the COVID-19 pandemic. In particular, it was designed to direct financial support to businesses that were losing revenue, and seeing their cashflow disrupted, as a result of the COVID-19 outbreak.

How was it administered?

The BBLS was administered as follows: (i) during 2020 and 2021, high street banks entered into approximately 1.5 million loans for sums up to £50,000 with SMEs around the UK; (ii) the BBLS was overseen by the British Business Bank (BBB); and (iii) all loans made were underwritten by the HMG1.

Was the BBLS highjacked by fraudsters?

In its latest update report2, the NAO has identified that:

  • £47 billion was advanced.
  • £17 billion (37%) of loans are expected to not be recovered from borrowers.
  • £4.9 billion (11%) of loans appear to have been obtained fraudulently.
  • £32 million has been made available for counter fraud operations.
How did HMG end up in this position?

When the BBLS was launched in 2020, HMG made a policy decision to prioritise speed of payments to borrowers in order to ensure push money out into the wider economy. In order to achieve this policy goal, high street lenders were told to dispense with standard due diligence, applicant companies were required only to "self-certify" their financial position and the terms of the loans expressly stated that the borrower company (not the directors) would be liable upon any default of repayment.

It has now become apparent that entrepreneurial fraudsters exploited the scheme in some of the following ways:

  • Making applications in their role as director on behalf of companies and then dissipating sums out of the company (and in many instances then applying to Companies House to have the borrower company voluntarily struck off the register).
  • Making multiple applications to different high street banks on behalf of the same company and then dissipating sums into personal bank accounts.
  • Incorporating new companies, applying for, and obtaining a loan, and immediately dissipating funds out of the company.
Is the State taking steps to prosecute fraudsters?

HMG has appointed The National Investigation Service ("NATIS") to investigate fraudulent activity relating to the BBLS. By August 2022, NATIS had identified 559 individuals suspected of defrauding the BBLS3.

The Insolvency Service, meanwhile, has been making use of new powers under The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 20214.

The Zagroba Case5

Mr Zagroba was the director of a limited company in Manchester in the business of making and delivering pizza. Mr Zagroba (on behalf of his company) applied for a bounce back loan of £20,000 two weeks after applying to voluntarily dissolve the company.

The terms of the Bounce Back Loan clearly stated that borrowed funds could only be used for business purposes and not personal use. However, Zagroba admitted that the funds were not used to support his company. Instead, he used the money to purchase a car for personal use and gift money to friends and family.

Mr Zagroba pleaded guilty to the charges brought against him under s1007 of the Companies Act 2006 and s2 of the Fraud Act 2006 and has been jailed for two years and disqualified from acting as a director for seven years.

What about asset recovery?

According to the NAO's report, suspect loans are being grouped as follows:

  • Top-tier loans involving organised crime groups (OCGs) with sums of more than £100,000;
  • Mid-tier loans where there is evidence that borrowers acted dishonestly but not on a large scale;
  • Bottom-tier loans where individuals might have dishonestly received loans.

The job of recovering assets into HMG has to date sat on the shoulders of NATIS (however, as noted above it only has a limited budget and has been tasked with recovering just £6million over the next three years). The burden of recovering assets into HMG could soon be shared with the Insolvency Service, if it is empowered to pursue more prosecutions, like that pursued against Mr Zagroba and use its powers to make applications for compensation orders. It is currently not clear whether the Insolvency Service intends to make an application for a compensation order against Mr Zagroba.

However, the apparent scale of fraudulent activity is stark against the relatively limited resources available to the public sector and the expertise of the UK's asset recovery eco-system (forensic accountants, data analytics teams, insolvency practitioners and, dare we say, civil fraud lawyers). There must surely be a greater role that the private sector and the civil courts can play in recovering assets into HMG.

The losses arising out of a fraudulent loan application made by one company might not justify the use of the private sector. However, the role of OCGs has already been identified by the NAO's recent report. It seems likely that OCGs used mules to act as directors of companies that made fraudulent loan applications and then misappropriated sums from those companies (at the expense of the creditors of those companies – i.e. – the taxpayer). An obvious alternative route may therefore be for the relevant high street banks that administered loans to pool their intelligence and then take steps to wind up target companies and then appoint an insolvency practitioner who can engage asset recovery lawyers to pursue wrongdoers in the civil courts in England and Wales (and elsewhere).

If HMG is serious about prosecuting fraudsters and recovering assets, then perhaps we should allow state agencies to focus on protecting the public – by sending fraudsters to prison – and let the asset recovery specialists in the private sector do what they do best – recover assets.


  1. https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-schemes/bounce-back-loans/
  2. https://www.nao.org.uk/wp-content/uploads/2021/12/The-Bounce-Back-Loan-Scheme-an-update-Summary.pdf
  3. https://www.bbc.co.uk/news/business-62338308
  4. The Act has given the Insolvency Service new powers to prosecute directors who deliberately dissolve companies for the purposes of avoiding the payment of liabilities. These powers can be used retrospectively and up to three years after the dissolution of the company. Under the Act, the Insolvency Service can apply for disqualification orders against such directors of up to 15 years and/or for an order that the director is personally liable to compensate the company's creditors who have suffered losses due to their behaviour.
  5. https://www.gov.uk/government/news/bounce-back-loan-fraudster-jailed
How can we help you?

How can we help you?

Subscribe: I'd like to keep in touch

If your enquiry is urgent please call +44 20 3321 7000

I'm a client

I'm looking for advice

Something else