A businessman at the centre of a multi-million-pound investor fraud investigation secured £550,000 from Rishi Sunak’s bounce back loan scheme and has yet to pay any of it back.
In May 2020, Sunak, then chancellor of the Exchequer, launched the £46.6bn scheme in one of the biggest financial interventions of the pandemic. Small and medium-sized businesses were allowed to borrow up to £50,000 at a low interest rate from accredited lenders, with the government acting as guarantor.
Last year the government announced it had written off £4.3bn in fraudulent loans prompting Treasury and Cabinet Office minister Lord Agnew to resign. He said the Treasury’s oversight of the scheme had been “nothing less than woeful” and accused officials of “schoolboy errors”, including allowing loans to over 1,000 companies that were not even trading when Covid struck.
Khalid Bhatti and the unpaid bounce back loans
Among those were several run by Khalid Bhatti, who has now been disqualified from being a company director for 13 years. Most of his firms that were handed bounce back loans, and others in his Daniel Johns Group, sold leases to rooms in run-down buildings to hundreds of unsuspecting overseas investors over recent years. However, promised refurbishments have never materialised, properties have closed and some have ended up in flames.
Yorkshire Bylines first reported on the 41-year-old property developer in January last year amid concerns about the condition of a derelict hotel in Hull city centre leased to one of his companies. At the time, part of the pavement next to the former Portland Hotel had been closed to pedestrians because of falling masonry from the six-storey building.
Meanwhile, legal action by 33 investors – mostly believed to be from Hong Kong – had begun through Hull County Court over the failure to convert rooms in the hotel that had been sold to them as long-term buy-to-let apartments.
Today we can reveal the situation in Hull has been mirrored across the North.
Improperly obtained loans – just the tip of the iceberg
The disqualification in July by the Insolvency Service centred on a development project in Manchester involving a city council-owned block of flats and 11 ‘improperly obtained’ bounce back loans secured by companies linked to Bhatti, which involved property-based investment schemes in Liverpool, Blackpool, Birmingham and Manchester.
However, litigation experts now handling claims by disgruntled investors say these could be the tip of a much larger iceberg. They are currently investigating other development schemes in Leeds, Bradford, Scarborough, Preston and Leicester. Many were never completed or have since closed.
In Leeds, a former guest house in Chapeltown was marketed as student accommodation with rooms being sold as leaseholds to investors. Instead, it operated as a budget hotel before closing in late 2019.
In Bradford, a former office block converted into a hotel in Great Horton Road was also marketed to potential investors as student accommodation but closed suddenly in 2018.
While they were open, both attracted regular damning reviews on Tripadvisor although identical internal images of bedrooms were used to promote both properties. One guest at the Bradford hotel wrote: “Worst experience of my life. I have travelled the word and stayed in villages in the Amazon that had better service than this.”
Similar reviews were also posted about the Victorian-era Marine Residence hotel in Belmont Road, Scarborough, both before and after it closed in 2020. One said: “Do not let these jokers take your money. Arrived but the door was locked, no-one there. Called the number. Nothing.”
Breaches of fire safety rules
Two years earlier, Daniel Johns Ltd – with Bhatti listed as sole director –was fined £23,000 by Scarborough magistrates after pleading guilty to three charges relating to breaches of fire safety rules at the property.
The fire service attended the hotel again in late 2022 to tackle a large blaze. Investigations found it had been started by faulty electrics wired up to an illegal cannabis factory based in the disused building. By then, Daniel Johns Ltd was in voluntary liquidation having been wound-up a year earlier with HM Revenue & Customs listed as the main creditor with an unpaid liability of £155,000.
In July this year another major fire ripped through the four-storey property leaving it in an unstable condition.
The latest report by the company’s joint liquidators says 43 long leaseholds at the Scarborough property were sold to investors between 2016 and 2020 while the freehold was sold by Daniel Johns Ltd in September 2020. The report adds: “We are investigating whether this disposal of the freehold interest was for market value.”
The same liquidators are also examining the company’s ownership of the Chapeltown property in Leeds where they believe 28 separate leases were sold even though the building only had 25 bedrooms.
Leasehold sales at two other properties owned by the company in Preston and London are also being investigated by the liquidators.
Allegations of fraud
In their report, the liquidators say:
“We have received many enquiries from creditors who believe they have been defrauded in their purchase of leasehold interests. Total losses to creditors and investors could be in excess of £25m.”
According to the Insolvency Service, Bhatti’s company Daniel Johns Manchester Ltd sold leases for 107 flats in an advertised £50mn redevelopment of a former council high-rise, featuring a swimming pool, gym, sauna, cinema and rooftop garden. However, investors were unaware the council had refused to transfer the freehold because of a dispute over planning conditions not being met. As a result, no work was ever carried out.
The report says the development was eventually abandoned leaving the property a “derelict shell” and leaving investors at least £5.4mm out of pocket following the company’s eventual compulsory liquidation.
“It has not been possible to trace where these monies have been used,” it adds.
Improperly obtained bounce back loans
The 13-year disqualification order also covers 11 other companies controlled by Bhatti which, according to the Insolvency Service, “improperly obtained” bounce back loans they were not eligible for. Overall, the loans were worth £550,000 and remain unpaid.
Disqualifications of between 11 and 15 years are the toughest sanction available and are reserved for the most serious breaches of conduct, typically involving fraudulent or serious criminal behaviour.
A spokesperson for the Insolvency Service said:
“We can confirm that the 11 Bounce Back loans were for £50,000 each. In cases like this, the liquidators are responsible for recovering the funds, however, if this is not possible or sufficient the Insolvency Service can seek compensation orders through the courts.
“As one of the companies involved has not gone into liquidation or been dissolved, it is the responsibility of the bank to pursue their own recovery proceedings in that case.”
Investors seek compensation
Meanwhile, property litigation specialists Catalyst Litigation are among a number of firms trying to recover money for investors through compensation claims.
“The Daniel Johns Group employed sophisticated and targeted marketing campaigns, primarily focusing on international investors. However, many of the developments were never completed, with most having been closed”, said Maria Ostropolski, client services manager at Catalyst Litigation.
“Sadly, hundreds of investors have lost significant sums of money but we are now actively in the process of making claims to recover their losses.
“Investors in Daniel Johns developments who wish to recover their losses through legal action should seek advice on whether they have a viable claim urgently.
“Unfortunately, many investors are now approaching the end period of their time in which they are legally able to make a claim for their losses.”
Massive cannabis factory
Back in Hull, police last month uncovered what they described as a ‘massive’ cannabis factory inside the disused Portland Hotel, and arrested and charged two men found inside the building at the time.
Companies House documents show a 999-year lease on the property was granted to a new company, Daniel Johns Hull Ltd, in August 2018. Since then, the company’s name has been changed six times with Bhatti serving as a director for most of that time. The current sole director is his partner Aisha Arshad.
According to Companies House, the company’s latest annual accounts are ten months overdue while a compulsory strike-off notice published in March this year is currently suspended pending an objection.
All of this is little comfort to nearby businesses having to deal with crumbling wall tiles and even chunks of concrete falling from the empty building.
One shop owner, who did not wish to be named, said holes in the former hotel’s roof had also caused extensive water damage inside. She added:
“There was water coming through into my shop which is underneath the rear part of what used to be the hotel restaurant.
“At the time, there were some builders working on it. They took me right up to the top floor and onto the roof. I couldn’t believe what I saw. There were big holes in the roof and they were only covered with plastic bags.”
We have been unable to contact Mr Bhatti for a comment. A message on the Daniel Johns Group website says: “Down for maintenance. We are sorry for the inconvenience caused.”