British banks have launched a crackdown on Covid-era debtors that borrowed billions in state-backed loans but have long ceased trading, after ministers demanded that they recoup taxpayers' losses. Barclays, Starling Bank and HSBC have since June filed winding-up petitions against nearly 70 companies that have defaulted on pandemic-era loans, according to court filings. The majority of the small businesses being pursued appear to have been dormant for several years. Many have never filed corporate accounts.

The UK government has pushed lenders to step up efforts to pursue dormant borrowers that borrowed from taxpayer-backed schemes, according to people familiar with the matter. It comes after revelations that the Bounce Back Loan Scheme, launched in May 2020 to prop up ailing businesses, was exploited by fraudsters, who incorporated businesses that were able to successfully apply for loans. Loans of between £2,000 and £50,000 were handed out with little due diligence.

Fraud and error losses under the scheme are up to £2.8bn, according to estimates from the government's Covid counter-fraud commissioner. Starling Bank has filed 34 winding-up petitions targeting businesses including takeaway restaurants, tanning salons and kebab shops. Barclays has filed 26 winding-up petitions, while HSBC issued six winding-up petitions last week. Other banks will also step up legal proceedings against Covid debtors in the coming months.