Barclays has joined forces with insolvency litigation funder, Manolete Partners, in an attempt to recover bounceback loans that have been misappropriated by dishonest directors.

As the biggest lender under the government-backed scheme, Barclays provided loans totalling £10.8bn to SMEs in need at the height of the COVID-19 pandemic. With UK taxpayers reportedly now facing losses in excess of £1bn due to borrowers defaulting on their loans, Barclays has decided to participate in a pilot recovery scheme (under the supervision of the British Business Bank) in an effort to recover funds from around 100 defaulting companies. The pilot scheme is due to run until June 2023 and will no doubt be watched intently by other high street banks that provided bounceback loans and have suffered similar defaults.

Under the pilot scheme, Barclays will issue a winding up petition against a defaulting company, which would enter compulsory liquidation following a winding up order being made by the court. Manolete Partners would then acquire the claim from the Official Receiver/appointed liquidators to pursue the director(s) for misappropriation of the bounceback loan funds. Where funds are ultimately recovered from a delinquent director, Manolete Partners will be reimbursed its costs of pursuing the claim and will share the remaining proceeds with Barclays.

When faced with the threat of legal action, it seems likely that many directors will simply prefer to settle the claim (where possible) rather than have court action brought against them personally. Anecdotal evidence suggests that in some cases, the loan funds have not been spent and were simply transferred out of company accounts into the personal accounts of directors - who have effectively been sitting on the funds, adopting a “wait and see” approach in relation to potential recovery by banks. As time progresses, however, logic would dictate that the chances of any remaining funds being dissipated will increase, requiring banks to take decisive action in the short term in order to maximise recoveries.

The pilot scheme forms part of a wider government strategy to crack down on fraud within the bounceback loan scheme – with the Department of Business, Energy and Industrial Strategy confirming that it is collaborating with lenders, law enforcement and other government departments to seek to recover fraudulently obtained loans.

“We have an active programme to investigate fraud and we are working closely with the BBB [British Business Bank] and other government agencies to ensure that we are following proportionate recovery action”