Author: Azizur Rahman
5 September 2017
3 min read
When, at the start of this year, the Department for Business, Energy and Industrial Strategy transferred its Criminal Enforcement Team (CET) to the Insolvency Service, it had serious implications. These implications need to be considered by everyone on business, as failure to do so could prove costly.
The transfer means that the CET is now the main criminal enforcement agency for insolvency-related fraud and related corporate wrongdoing. It detects fraud in companies and prosecutes breaches of insolvency and company law discovered by other branches of the Insolvency Service and other agencies. The CET has a wide remit.
From April 2016 to March 2017, the CET – initially with the Department for Business, Energy and Industrial Strategy and then for the Insolvency Service - successfully prosecuted 97 defendants.
While its core workload is breaches of company and insolvency law, rather than wider issues such as fraud or bribery, its remit means that it is always likely to be bringing prosecutions. Acting as a director while disqualified or bankrupt (Company Directors Disqualification Act 1986), fraudulent trading, failure to preserve or keep accounts (Companies Act 2006) and offences under the Insolvency Act 1986, such as failing to disclose property to the Official Receiver, are just some of those offences it prosecutes.
What many in business need to consider especially carefully is that custodial sentences were given to almost two thirds of those prosecuted in 2016-17. While some were suspended sentences, many of the cases saw people imprisoned for anything from eight weeks to four years.
When you consider that 30% of those convicted were also disqualified from being involved in the running of limited companies, it is clear that the CET has strong sanctions at its disposal.
The Insolvency Service disqualified a total of 1,214 directors in 2016-17 and referred 430 cases where it believed criminal activity had taken place to prosecuting authorities.
In an era where all law enforcement agencies are sharing intelligence quicker and more regularly, the Insolvency Service’s CET is only likely to receive more and more information about wrongdoing from other authorities. And, of course, it is not only ideally placed to bring its own prosecutions – it can ensure anything it discovers that may be of use to, for example the Serious Fraud Office, can be passed on swiftly.
This is emphasised by the Insolvency Service’s most recent annual report; which talks of its ability to “use information provided by other regulators as part of our considerations, gathering additional information where needed, rather than having to undertake fresh investigations ourselves to gather the same information.’’
Information sharing has enhanced the Service’s awareness of wrongdoing and its ability to act on it. This new, strengthened CET has to now be considered alongside the likes of the SFO and Crown Prosecution Service as an organisation that those who are guilty of breaching business law need to be afraid of.
In the simplest possible terms, if your company collapses it may be something that the Insolvency Service will take a close interest in. But don’t believe that the matter will go no further if the problems are more deep-lying than a simple failure to balance the books. The IS’ CET has the powers, expertise and the information it requires to investigate wrongdoing – and will not hesitate to refer anything beyond its remit to the appropriate authorities.
So if you believe that your company may be about to come to an unfortunate end, what should you do?
If there are problems, appointing a lawyer with business crime expertise to carry out an internal investigation can help identify what is wrong. Such a solicitor can also give advice on either tackling the problems or the best way to report them to the authorities. If you report the problems before the authorities are aware of them, you have a much greater chance of being treated leniently than you would if it was the authorities who uncovered the wrongdoing.
An internal investigator’s advice may seem difficult to accept for those running a troubled company. But such advice is impartial and based on experience. If it helps minimise the legal or financial fall-out from a company’s collapse: it will be a medicine that is worth taking.
Such an expert can also be a vital asset when it comes to negotiating with the authorities; whether it be the IS, the SFO or other body. They can counter the authorities’ legal arguments, offer evidence to challenge - or at least minimise – the allegations and be present should a company director need representation in disqualification proceedings.
Much of this article has emphasised the increased strength and ability of the IS to carry out its duties and involve other authorities if and when it believes it necessary. Those in business have to be aware that insolvency cannot be treated as a soft option or an escape route if wrongdoing has been committed. It is an issue that has to be approached with the support and advice of those with the relevant expertise.
Aziz Rahman is Senior Partner at Rahman Ravelli and its founder. His ability to coordinate national, international and multi-agency defences has led to success in some of the most significant corporate crime cases of this century and top rankings in international legal guides. He is recognised worldwide as one of the most capable legal experts regarding top-level, high-value commercial and financial disputes.