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Dec 1, 2019

To date more than 1 million SME's have now received government backed loans in response to the Covid-19 pandemic, totalling over £50bn

The bounce back loan scheme is light touch, with £50,000 term loans available for up to 6 years. There are minimal checks on borrowers, who are required to self-declare that they meet the generous criteria.

Under the Coronavirus Business Interruption Lending scheme (CBIL), businesses can borrow up to £5m. Wider categories of finance are also available. Whilst lenders are required to undertake some affordability and viability checks, due to the volume and urgency of loans applications, there is a risk that some loan applications may have been rushed through without the usual due diligence standards being met. Lending decisions also rely on borrowers self-declaring that they meet certain criteria.

Strikingly, according to the Business Banking Resolution Service, 43% of businesses that have taken out either a bounce back loan or CBIL say they do not believe they will be required to repay the loan or be able to do this.
The fast-tracked nature of the government backed loans, coupled with 1) the apparently relaxed attitude of businesses towards the repayment of these; and 2) the prospect of worsening economic conditions, suggests that there will be a large number of loan defaults and insolvencies.

Furthermore, the Covid-19 pandemic seems likely to recreate conditions that have seen fraud levels increase during past financial crises; specifically: a) opportunity (e.g. the availability of financial support from government); b) financial pressure; and c) wrongful rationalisation of behaviour (needs must/other people are doing the same/not expected to repay loans).

We therefore anticipate that amongst the large number insolvencies that will stem from the current economic downturn, there will be an increased incidence of company/insolvency law breaches.

Amongst other things, breaches may occur in connection with government backed loans, such as where loans are used to give a preference, fund enhanced remuneration, pay unlawful dividends and/or acquire assets for personal benefit.

A careful examination of the books may also reveal past breaches that may not have been uncovered during ordinary trading conditions/if the insolvency situation had not occurred.

How we can help:
A viable claim by/for the benefit of an insolvent estate is an asset which ought to be investigated and realised. However, if there are no funds to pursue the claim, there is likely to be a need for external finance to pay the costs required to realise the value of the claim/asset.

We have a track record of successfully providing third party litigation funding and taking assignments of claims from office holders and insolvent estates, on competitive terms.

We do this is in a cost effective and timely manner, and can add value through our accountancy, insolvency and legal expertise (for example, in past cases, our forensic analysis of financial records has uncovered additional claims). We do not have a minimum claim value threshold; we assess viability on a case by case basis.
Previous cases have included (amongst others) misfeasance, preference, transaction at undervalue and unlawful dividend claims.

Quote from Jamie Taylor Partner at Begbies Traynor
“We have worked successfully with Cavendish IP Solutions on a number of cases over the past 3-4 years. Most of the cases have resulted in successful recoveries on behalf of the creditors. I have found them to be very straight forward, responsive and communicative. They have also proven, with their backgrounds in insolvency, accountancy and law, to be extremely helpful in investigating and assisting in the prosecution of the cases.”

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