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.
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
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
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
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
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.