Secretary of State v Stan
Bounce-Back Loan Enforcement: What Directors Need to Know After Secretary of State v Stan
A judgment handed down by Judge Briggs on 18 May 2026 adds important new guidance to the growing body of Bounce-Back Loan (BBL) enforcement case law. Secretary of State for Business and Trade v Stan [2026] EWHC 1164 (Ch) clarifies how courts should assess culpability and what level of sanction is appropriate where a director overstated turnover on a BBL application without any deliberate dishonesty.
Background
ADS14 Limited was a small painting and decorating business that had traded for seven years before the pandemic. When the lockdowns of 2020 happened, work dried up and the sole director, Aurel Stan, suffered long COVID for several months.
In July 2020, Mr Stan applied to HSBC for a BBL. He declared turnover of £225,000 and received the full £50,000. However, the company's actual turnover in 2019 was below £120,000 and so it received about £20,000 more than it was entitled to.
The company ceased trading in October 2021 and the BBL remained its outstanding liability. The Secretary of State sought a disqualification order under section 6 of the Company Directors Disqualification Act 1986 (CDDA) and a compensation order under section 15A.
The Decision
Disqualification for four years
The court found that Mr Stan had failed to take proper care when completing the application. Rather than using his company's actual 2019 turnover, he had used a forecast of future income based on contracts he hoped to inherit from a larger company. The judge accepted this was genuine error, not deliberate fraud. No dishonesty was alleged and the loan proceeds had been used for legitimate business purposes.
Never the less, the court found his conduct amounted to unfitness. Signing a declaration confirming inaccurate information where borrower honesty was the primary safeguard was a serious failure of the basic standards of diligence expected of directors.
Compensation for £19,752 plus interest
The judge made a compensation order under section 15A CDDA, requiring Mr Stan to personally repay the amount together with interest.
Why This Judgment Matters
The significance of this case lies in the court’s articulation of how culpability should be assessed in BBL proceedings.
The Secretary of State had argued for a 10-year disqualification which sat in the middle bracket of the Re Sevenoaks Stationers [1991] Ch 164 framework. The court rejected this and drew a distinction between:
a) Knowing or reckless misconduct, where a director deliberately or recklessly overstated turnover which will attract a higher disqualification period; and
b) Mistake or failure to take care, where the error was genuine though careless which will attract a lower disqualification period.
The decision also established that if the Insolvency Service intends to allege knowing or reckless misconduct, this must be clearly pleaded from the outset and raising it through cross-examination at trial is procedurally impermissible.
What This Means in Practice
The decision offers some comfort to directors who overstated BBL turnover through genuine confusion rather than deliberate manipulation. These directors may be able to argue for a lower bracket disqualification period than the Secretary of State typically seeks. Additionally, the new requirement to carefully describe the circumstances and particularise the alleged misconduct can require the Secretary of State to consider whether the suggested disqualification period is reasonable and proportionate in the circumstances and if so, why so.
However, the judgment should be read carefully. A 4-year disqualification prevents a person from acting as a director of any UK company without court permission and can have significant consequences.
Is This Relevant to You?
BBL enforcement is ongoing. The Insolvency Service can bring disqualification proceedings for up to three years from the date of a company's insolvency and can seek compensation within two years of a resulting disqualification. For many directors, those deadlines have not yet passed.
If your company took a BBL during the pandemic and has since become insolvent or you have received a section 16 letter from the Insolvency Service, you should take legal advice urgently.
We regularly advise directors in relation to BBL investigations and Insolvency Service proceedings. If you have concerns about your position, please get in touch with our team today.
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The content provided in this newsletter is for informational purposes only and does not constitute legal advice.
Any person facing legal charges should seek immediate advice from a qualified solicitor or barrister.
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FAQ
Some questions we get, which may help you in this moment
When you receive a Letter of Claim or a formal Claim Form, you are at a critical crossroads in a legal dispute. While they may look similar, they represent two different stages of litigation, and mishandling either can lead to unfavourable financial and legal consequences.
A Letter of Claim, also known as a Letter Before Action, is a formal warning that someone intends to start court proceedings against you. Under the Civil Procedure Rules, parties are expected to exchange enough information to understand each other’s positions and attempt to settle without involving the court.
Ignoring this letter is a high-risk strategy. Even if you believe the claim is meritless, the court can penalise you later by ordering you to pay the other side’s legal costs, because you failed to follow the required Pre-Action Protocols. This stage is actually a vital window of opportunity. It allows for strategic negotiations or Alternative Dispute Resolution (ADR), which can resolve the matter privately and more cost-effectively than litigation.
If you receive a Claim Form, on the other hand, the matter has officially entered the court system. This is more urgent than a preliminary letter. From the moment you are served (which is deemed to occur 2 business days after the documents were posted to your last known address) the countdown begins.
If you do not engage with a claim, the other side can request a default judgment 15 days after you are deemed to have received the Claim Form. Once this judgment is entered, it is a matter of public record that can significantly damage your credit rating for 6 years and allows the other side to take enforcement measures.
There are procedural steps available to protect you in such situations. For instance, filing an acknowledgement of service is a vital holding position and allows you more time to prepare a proper defence. Engaging with a solicitor at this moment is essential to identify potential flaws in the claim that can allow you to have the claim stopped or struck out.
A court judgment (often called a CCJ) is a serious matter that allows a creditor to take aggressive enforcement action, such as sending bailiffs to seize goods or freezing your bank accounts. However, there are solutions to put your mind at ease. The first priority is to determine if the judgment was entered correctly. If you were unaware of the original claim, perhaps due to documents being sent to a previous address, there are procedural mechanisms to apply to have the judgment set aside. This process effectively cancels the judgment and reopens the case, but the court will only grant this if you act quickly after discovering the order.
Immediate legal guidance is essential to ensure your application meets the court's strict requirements.
A judgment is a major indicator of financial risk that stays on your credit report for 6 years. During this time, it can prevent you from obtaining a mortgage, securing a loan, or even getting a mobile phone contract. Many private landlords and letting agents also check these records, meaning a judgment could even stop you from renting a home.
To minimise this damage, paying the debt in full more than 30 days after the order will mark the judgment as satisfied. While the entry remains for the full 6 years, a satisfied status shows future lenders that you have fulfilled your obligations.
Contractual breaches can range from minor failures to fundamental violations that render the entire agreement void. Before initiating a formal claim, the court expects parties to follow certain Pre-Action Protocols, which involve clear correspondence detailing the breach and the resulting loss. This structured approach often provides a solution to the dispute through negotiation or mediation, and helps parties avoid the costs of litigation.
If a claim becomes necessary, the objective is to secure damages that place you in the financial position you would have been had the contract been fulfilled. Depending on the nature of the breach, other remedies may be available, such as specific performance, where the court compels the other party to complete their original obligations, or an injunction to prevent further harm.
Recovering a debt requires a careful strategy to ensure the process remains cost-effective. We begin with formal demands that comply with court standards for debt claims. If the debtor remains unresponsive, obtaining a court judgment is the next step, which then unlocks a variety of enforcement tools to turn that judgment into actual payment.
Depending on the debtor’s assets, the legal solution may involve a Charging Order to secure the debt against their property, an Attachment of Earnings to deduct payments directly from their salary, or a Third-Party Debt Order to recover funds from their bank account. In cases where a debtor is a company, insolvency-based procedures like a Winding-Up Petition can also be considered as a powerful means of prompting payment.
A limitation period is a statutory deadline imposed by the Limitation Act 1980, typically giving you 6 years from the date of a breach or damage to issue a claim. Once this period expires, the claim is time-barred, and the other side will have an absolute defence to block your case, regardless of its merits.
Because these deadlines are non-negotiable, waiting too long can mean losing your right to justice entirely. We recommend a prompt review of any potential claim to ensure you meet all statutory time limits and protect your ability to recover your losses.
