CBILS and BBLS: a company liability, but when might directors attract personal liability?

Anecdotal reports have been widely circulated of some businesses misusing funds from the British Business Bank and therefore government-backed Coronavirus Business Interruption Loan Scheme and the Bounce Back Loan Scheme.

Further, the Fraud Advisory Panel has expressed concerns to the Chancellor and the Insolvency Service's latest guidance to Insolvency Practitioners makes clear it is their duty to consider and report on instances where loans were taken out fraudulently ahead of companies entering insolvent liquidation or administration.

Regardless of how widespread or accurate such allegations are, they speak to an important issue: risks of company directors potentially facing claims alleging some personal liability in the event the company subsequently enters an insolvency process.

Considerations for Directors: CBILS & BBLS fraud

Whilst IPs have always been obliged to investigate a company's affairs and report on directors' conduct, the express reference in the guidance to fraudulent applications for the CBILS and BBLS also offers a salutary reminder to directors of the need for good governance and careful decision-making. Furthermore, they should be evidencing their decision-making and underlying reasoning when applying for and utilising CBILS and BBLS funds.

On applying for CBILS and BBLS

When applying for loans, company directors will certify that the company meets certain eligibility criteria. To do so, they will need to be sure that what they are signing on the company's behalf reflects its true position. For instance, confirming that the business has been "adversely impacted" by Covid-19 and was not "in difficulty" before December 2019. Although from 30 July 2020, for businesses with fewer than 50 employees and less than £9m in turnover, what constitutes "in difficulty" has changed.

Incorrect information in the loan application can result in the loan being withdrawn and, in extreme cases, could be alleged to be fraudulent attracting both civil and criminal liability. It is also possible that such conduct could amount to a breach of fiduciary duty and therefore misfeasance.

On using CBILS and BBLS funds

Whilst funds can be used to refinance existing borrowing, directors should take care not to repay a particular lender ahead of others. Whilst the absence of personal guarantees may make it attractive to refinance lending supported by personal guarantees, in cases where a business fails, IPs will certainly be looking carefully at such instances as potential preference claims under the Insolvency Act 1986.

The intention behind the CBILS and BBLS loans is to enable a business to trade through or beyond the Covid19 pandemic – simply refinancing existing debt or out of the ordinary purchases are likely to come under intense scrutiny.

On paying dividends

Directors also need to be careful when paying themselves dividends in circumstances where solvency may be in doubt and creditor borrowing has increased. There will be times when dividends in the ordinary course will be appropriate, but directors should consider each situation on its own facts and take advice.

Suspension of wrongful trading rules

Legislation has temporarily suspended personal liability for wrongful trading under s.214 Insolvency Act 1986. This means that a director cannot have personal liability if they continue to trade, with no realistic prospect of avoiding a formal insolvency, currently until 30 September 2020.

For directors, this has provided some comfort and allowed them to continue trading through the current crisis, which made it difficult to be sure that a company had an absolute ability to avoid insolvency. However, directors remain subject to several other statutory duties and responsibilities and will need to take account of the interest of creditors at this time.

Adherence to the wrongful trading principles will stand directors in good stead if an insolvency arises and their decision-making is looked at by an IP.


Directors' conduct will be scrutinised by apt authorities against reasonable standards of conduct expected both on an objective basis and on a subjective, individual level, given the director's skillset and responsibilities.

IPs will take into account the acknowledged uncertainties brought about by Covid-19, but we may see a rise in fraudulent business trading and misfeasance claims against directors under the Insolvency Act 1986 as well as claims for disqualification (a criminal sanction in extreme cases) and breaches of employment and company law.

Whilst directors concentrate on business survival, they must ensure that prudent and careful decision-making remains a constant throughout.

It can be all too easy to focus on getting by day-to-day, but decisions made now will impact longer term strategies and might not turn out as hoped. Directors must therefore be alive to their wider duties and ensure they think through their actions, continue to act prudently, in good faith and properly record their decision-making.

Never before has it been so difficult for directors to make these assessments; but 'difficult' doesn't mean it can or should be avoided. Here are some steps that directors should take to protect themselves:Ensure all directors have access to all relevant financial information.Meet regularly as a board and keep careful notes of the discussions held.Record the reasons why key decisions were made, especially those dealing with the prospects of continued trading. Include the impact on creditors, with careful consideration where particular creditors receive different treatment to others (avoiding creating an intended preference and taking account of good business reasons).Maintain a dialogue about the intended use of business interruption loans and how they will, in the directors' view, ensure the long-term viability of the company and be in the best interests of creditors.Seek professional advice from those within the restructuring community if that particular skill set is not already within a board's capabilities.Maintain a day book of individual decision-making and thought processes in addition to the board meeting minutes, particularly where points are made by an individual director but the collective decision does not take account of them.

Failure to take these steps may mean that directors find themselves unable to resist later claims against them and the prospect of personal and/or criminal liability.

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