BUSINESSES have been warned they could face penalties including winding-up orders and director disqualifications if coronavirus loans have been misused or improperly applied for.

Insolvency firm Antony Batty says it has also heard of businesses which are struggling with repayments on the government-backed loans and finding it hard to renegotiate.

The government backed loans totalling £38billion of loans to businesses under the Coronavirus Business Interruption Loan scheme (CBILs) and its replacement the Bounce Back Loan scheme (BBL).

Elaine Wilkins, business development manager at Antony Batty’s Bournemouth office, said although the government guaranteed 80 per cent of the funds loaned, there had been indications that the government guarantee could be taken away where the lender did not employ systems to identify improper applications.

“This type of situation could lead the lender to being 100 per cent per cent responsible for these loans and would lead to the lender examining its options for the recovery of such funds,” she said.

HMRC has said it could issue freezing orders to recover funds fraudulently lent, while the Insolvency Service has wound up companies and obtained orders to disqualify directors for up to 15 years.

Fraudulent loans could also lead to civil or criminal liability.

Ms Wilkins added: “As insolvency practitioners, we have a duty to investigate an insolvent company’s affairs and the conduct of its directors.

"This would include looking at all applications for such loans to ascertain whether they were correctly made, and whether such funds were properly used to support the business as was intended, and not, for instance, to replace an existing loan which had been personally guaranteed by the directors.”

She said many businesses had only been able to get through the pandemic with government support, but that long-term recovery also required economic growth, which had been pinched off by inflation and supply chain problems.

Antony Batty has been hearing of businesses which are beginning to struggle with repayments and finding it difficult to renegotiate payments with the lender.

But the firm said struggling businesses could be turned around through measures including creditor negotiations, refinancing or a restructure using a company voluntary arrangement (CVA).

The government security on a Covid loan only takes effect if a company enters a formal liquidation process, so loans and repayments must be dealt with if a business is to continue.