COMPANY directors who took out Covid bounce back loans could be pressured into admitting wrongdoing despite having acted honestly, an insolvency practitioner fears.

The government-backed loans – which totalled £46.6billion – have been credited with saving up to 500,000 businesses which would otherwise have gone bust in 2020.

But when small businesses become insolvent despite the loans, the eagerness of liquidators to detect fraud could lead to bosses being “tarred with the same brush” as dishonest directors, according to Mike Pavitt, lead partner in corporate insolvency and restructuring at Southampton law firm Paris Smith.

“I think there are directors who don’t understand the questions being put to them or the significance of the answers at the time they’re answering them,” he said.

“I think it’s right that directors have an opportunity to take a step back and have all the information so they can give a considered answer which doesn’t land them in trouble that by rights they shouldn’t be in.

“I think the danger is that honest but perhaps less informed directors are being tarred with the same brush as dishonest, more informed directors who took money out of the company, knowing what they were doing.”

He said when the bounce back loan scheme began, there were no warnings about how the lending should be used, and many bosses paid it out immediately on “the most pressing things” to get from month to month. This could lead to them being accused of spending the loans to benefit themselves rather than the business.

“If you are an experienced financial director and you’ve maybe got some legal or accounting training, you know your duty to the business is a fiduciary one and you can’t use it for any purpose which is in conflict with the company. The moment that something you do in the name of the company benefits you, you have a conflict of interest with the company and you’ve got to weigh that up,” he said.

He was concerned that some people might accept being disqualified as a director, thinking it would end their problems.

“It may be overwhelming at that point. You may simply say ‘so I’m disqualified then’,” he said.

But he said this could amount to evidence of a breach of duty which could open up the director to civil court action from other people.

“There is no doubt that there has been extensive abuse by some directors and companies of various government backed support schemes since the pandemic,” he said.

But he said there was a “real risk” of innocent directors suffering disqualification or court judgements.