When charged with fraudulent trading, it is the prosecutions duty to prove that a business acted with the intent to defraud creditors. This could be defrauding of the company, of an individual, or that the business was acting towards a fraudulent purpose.
Fraudulent trading is an abuse of positions of responsibility or power at the corporate level, carried out by a director, high-level employee or former employee which results in the business suffering financial loss. Proving or rebutting dishonesty is a key factor in fraudulent trading cases for a successful prosecution or a successful defence.
Examples of fraudulent trading include :-
- the misappropriation of company funds for personal gain,
- abuse of expenses schemes, or
- employees diverting business to themselves for their personal gain.
- fraud in the lead up to insolvency
If you or your business are the victims of fraudulent trading acting quickly is vital. If the evidence is clear that money has been misappropriated, we can help you take immediate action for an Injunction. This will help to capture and freeze the Defendant’s assets to make sure that your money does not go anywhere. From there we can work with you to navigate this complex area. We can then build a strong case to give you the best opportunity to recover your money.
Legal liability, in the criminal sense, after fraudulent trading, depends on the type of fraud and underlying situation. In some cases, the Fraud Act or Theft Act may apply, but where the fraudulent trading relates to insolvency the Insolvency Act will apply. There can be crossover and so you will need expert assistance if you are a defendant, on technical legal issues such as deceit, conspiracy, breach of trust and/or duty of care. Civil law may also apply such as conversion, breach of contract or claims for restitution.
The law states that only managerial staff or persons within senior controlling roles in a company may be charged with committing fraudulent trading. However, mid-level and junior staff can still be charged with aiding in the offence. This does complicate matters for junior staff that may be aware of matters but feel unable to come forward or do anything about it.
To prove fraudulent trading is more than simply proving that the perpetrator set out with intent to defraud a creditor, a senior member of staff may still be charged with fraudulent trading. This applies if a senior staff member knew of it and turned a blind eye. It could also be even if they traded believing that later in insolvency the creditor would have their account settled.
Fraudulent trading when insolvent
Fraudulent trading cases involve a company that has become insolvent. In this context if company directors have traded oin when the business is clearly insolvent, have siphoned off assets or sold them cheaply to connected persons or otherwise acted deliberately with an intent to disadvantage creditors, an appointed Insolvency Practitioner will investigate (and is duty bound to investigate the directors conduct in the lead up to insolvency in any event) and recommend that civil and/or criminal offences have occurred. A director may face personal liability to pay back losses, disqualification as a director and at teh extreme, a prison sentence of up to 10 years.
For more information on fraudulent trading, please contact us.
A GOOD DEFENCE WILL ENSURE THAT THE JURY HAVE AN INSIGHT INTO THE DEFENDANTS’ MIND-SET AS TO WHY THEY ACTED THE WAY THEY DID
Fraudulent trading generally falls into two categories, long term fraud and short-term fraud:
Long term fraud is defined as companies which have been created for the sole purpose of defrauding creditors. Usually the company firstly establishes trust and credit by setting up accounts and settling them swiftly. However, once trust is secured they make orders in large quantities of goods from suppliers and then disappear.
It can sometimes be the case that legitimate companies have run into financial difficulties and are unable to settle their accounts. As such, a complaint has been raised to the Police resulting in an investigation.
Short term fraud, whilst being a less lucrative form of fraud, is the most common. This is where a perpetrator will order goods from a supplier (usually in as large quantities as possible) and never settle the account, disappearing with the goods.