Have any of your clients taken out a Covid-based loan? If so, then what are your responsibilities as the advising accountant?
We have noticed an increase in businesses looking to close either by way of liquidating the Company or a strike off where there is an outstanding bounce back loan (“BBL”) or a CBIL, or in some cases, both.
Companies House has been bombarded with requests from lenders to STOP STRIKE OFF action of a significant number of companies.
Directors are being put under severe pressure to repay the covid loans. There has been a significant increase where directors have already taken advice and placed the company into liquidation where there has been outstanding Covid loans and where the funds have been used for personal benefit. This has meant that the Insolvency practitioners have reported the directors conduct to the Insolvency Service thereby increasing the chances of those directors being disqualified under the Company Directors Disqualification Act 1986.
One of the main conditions of the Covid loans was that it was purely for business and NOT personal use.
What affect does this have on you ?
Accountants are not required to identify how the Bounce Back Loan ( BBL ) was used BUT it is likely that the director will pass on this information to the accountant so that it can be used for the preparation of the annual accounts.
Are you as the accountant obligated to submit a Suspicious Activity Report (SAR)?
If accountants consider their clients may have used BBL funds for personal purposes say for example to pay off a car hire purchase which is in the directors’ personal name or even pay off a personal loan.
Depending on which regulatory body you belong to and their code of ethics – one which includes the fundamental principle of integrity. It says something along the lines of
an accountant shall not knowingly be associated with reports, returns, communications or other information where they believe that the information:
- contains a materially false or misleading statement; or
- contains statements or information provided recklessly; or
- omits or obscures required information where such omission or obscurity would be misleading.
In addition to this the accountants must look at their anti-money laundering ( AML ) obligations. In general, accountants are required to submit a SAR to the National Crime Agency, where information comes to them during their business, which leads them to suspect that another person is engaged in money laundering.
This is the same for insolvency Practitioners. Accountants need also to think about whether the application of Covid loans will have an adverse effect on the directors’ loan account.
There is a fine line when making these enquiries under the money laundering regulations so extra caution is advised in such circumstances. It is safer to make sure that serious consideration of submitting a SAR must be given if the information to secure the BBL or CBIL in the first instance was false or misleading by the person making the application.
Here are a few things which you could consider.
Had the business ceased trading prior to 1 March 2020?
Were dormant accounts for 2019 and/or 2020 filed by the company?
How did the Turnover compare on the online application to that shown in the previous year ?
Was a loan obtained for more than 25% of turnover?
Was the Company insolvency at the time of the application?
Did the directors suspect that the company was insolvent at the time of application?
Did the directors make the application after a petition or winding up resolution?
Where from a jurisdiction point of view was the company trading from?
We currently have two cases where we are advising the directors where the accountant was being held responsible for the way in which the Covid loan applications were made. We know the accountant and the firm well and it has placed them in an uncomfortable situation.
The area of BBL and CBILs is very mush the hot topic now and will continue to be so for until the estimated 1.6 million loans have been dealt with.
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