Ben Ticehurst explains the new powers at the Insolvency

Service’s disposal – and what those in business need to do to ensure they do

not fall foul of them.

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.

Prosecutions

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.

Information

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.

Internal Investigations

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.