Is the Insolvency Service’s New Criminal Task Force a Declaration of War on Directors?
The start of 2017 saw a significant change at the Insolvency Service and a new era of investigation. It involved the recruitment of no less than 90 criminal enforcement investigators to form a new Criminal Task Force. They have been drafted in from the Legal Services Group of the Department for Business, Energy and Industrial Strategy (‘BIS’) in a drive to combat financial wrong-doing. This article looks in some detail at why we believe this Task Force could mean more criminal prosecutions for directors who might already be facing director disqualification following insolvency.
What are the Responsibilities of the Task Force?
The Task Force is responsible for investigating and prosecuting breaches of company legislation, with a particular emphasis on insolvency cases. Objectively, this can and should be construed as a declaration of war on defaulting directors.
The strong relationship between the Criminal Enforcement Team of the Insolvency Service and other governmental departments (such as the Employment Standards Agency and Companies House), and the exchange of information between them, means that the Insolvency Service’s investigatory powers are more far reaching than ever before.
It is perhaps inevitable that the number and type of criminal investigations pursued by the Insolvency Service will increase significantly in the coming months as will the number of cases that result in Directors appearing before the Magistrates and Crown Court. We are already seeing an increase in the number of cases coming across our desk.
So What Does This Mean for Directors?
Whilst civil law director disqualification proceedings remain at the forefront of Insolvency Service investigations, no doubt the Criminal Enforcement Team will be focusing on obtaining greater prosecutions in respect of the following types of offence:
- Prohibited Names
The law restricts the re-use by a director of a name previously used by a company of which he/she was a Director that has gone into insolvent liquidation. Contravention of this restriction by the Director is a criminal offence which can result in a custodial sentence and/or a fine for the Director. In addition, the director may be liable for any financial losses suffered by creditors of the company using the prohibited name.
Experience tells us that historically, the Insolvency Service would often drop criminal prosecutions (alleging use of a prohibited name) provided that the director rectified the breach. However, we suspect that the new Enforcement Team will take a much harder approach to directors in breach. We are already seeing a hardening of approach from the Insolvency Service.
- Failure to Keep, or Deliver up, Company Accounting Records
It is an offence for a company to fail to keep adequate accounting records. A director found in breach of that duty is liable:
- On conviction on indictment to imprisonment for a term not exceeding two years, or a fine (or both).
- On summary conviction to imprisonment for a term not exceeding 6 months, or an unlimited fine, or both.
Again, we are advising Directors in a number of such cases at this time.
- Breach by the Director of a Director Disqualification Order
This is again a criminal offence punishable by imprisonment for up to 2 years and/or a fine. The director may also be held personally liable for the company’s debts incurred during the period of the breach. This is an allegation we regularly see pursued by the Insolvency Service.
- Financial Consequences of Criminal Conduct for the Directors: Confiscation Proceedings Following Successful Prosecutions
Following on from a successful criminal prosecution the criminal court has the power to impose confiscation orders. This threatens the asset base (to include the home) of the convicted Director. Serious Stuff.
We have no doubt that the Criminal Enforcement team will be looking to secure Confiscation orders against Directors, upon successful prosecutions.
Conclusion: An Escalated Threat of Criminal Prosecution Above and Beyond Director Disqualification
As a result of this new Criminal Task Force, we believe that:
- Directors, whether deliberately or otherwise, are more than ever looking down the barrel of criminal prosecution in respect of their conduct.
- Decisions made by Directors at or about the time of liquidation of their company (and subsequently), will be under intense and increasing scrutiny.
Prevention is always better than cure; the message to Directors continues to be that if in doubt, seek advice from reputable and experienced Solicitors.
All too often, we see Directors taking advice from unregulated, uninsured and unlicensed advisors; such advice is very unlikely to give the Directors any credibility with the Court or carry any weight (in terms of making out a possible defence or as mitigation in a sentencing context) in a criminal prosecution scenario.
For directors threatened with director disqualification and worried that this new Criminal Task Force is likely to investigate their conduct, please contact us or call us on 0121 200 7040 for an initial chat.