FRAUDULENT TRADING – s993 COMPANIES ACT 2006 AND s9 FRAUD ACT 2006.
THE LAW
Fraudulent trading is the carrying on of a business with the intention of defrauding creditors or for any other fraudulent purposes. This can include creditors of any other person or any other person for fraudulent purposes. This can arise where a business carries on trading knowing there is no, or little chance of it’s creditors being paid. It often arises after the winding up of a business leaving creditors unpaid.
At one extreme is a business that is set up with the intention of defrauding creditors, buying large quantities of goods and never paying for them. At the other extreme is a legitimate business that has got into trouble and continued trading too long after it was clear its debts could not be paid and has continued to obtain credit. It is frequently charged in Boiler Room Frauds
The prosecution have to show a number of things to prove this offence. They will have to show that you were carrying on a business, this can include a single transaction. They will have to show that you were knowingly a party to the carrying on of the business. It can only be committed by someone who has control or some management responsibility in the company. A salesman with no management responsibility who sells worthless shares can not be charged under this offence but could be charged with other offences under the Theft Act. They have to show that there was an intention to defraud. If there was no prospect of debts being paid then the court can infer that there was an intention to defraud.
Section 993 of the Companies Act 2006, relates to companies and every person who is a knowing party to the activity commits an offence.
It doesn’t just apply to companies. The Fraud Act 2006, s. 9 relates to sole traders or partnerships.
DEFENCES
The key to defending these cases is to show that you were not dishonest. If we can show that you genuinely believed that you would be able to pay the debts then we are more likely to be successful in defending the charge. It may be that the business was simply not managed well rather than dishonestly defrauding creditors.
It is important to note that simply turning a blind eye to the situation will be sufficient to enable the Prosecution to prove dishonesty and for you to be found guilty. There are numerous scenarios that would lead the court to conclude that there was no dishonesty, you may have genuinely believed you could pay the debts only for something to happen that made the situation worse.
It’s important that we get a full picture of your financial position to fully explore any defence, we work in association with forensic accountants that can give a full report to assist.
SENTENCING
This is an offence that can be dealt with both in the Magistrates Court and in the Crown Court. The vast majority of the cases are dealt with in the Crown Court because of the large amounts of money involved.
The maximum sentence is ten years in prison. For offences which are alleged to have taken place before January 15th 2007, the maximum is 7 years.
Only the most serious and blatant cases will result in sentences approaching the maximum. To attract this length of sentence, the offending must have been carried out over a long time, and be for a very large amount (at least several million), and be shown to be either blatant and reckless, or a long firm fraud, set up specifically for fraudulent purposes.
At the other end of the spectrum there will be cases where there had been a viable business which ran into financial problems, and the directors had attempted to trade themselves out of trouble, but not for overtly dishonest purposes. These kind of cases will attract less serious penalties.
Sentences of 1-3 years are, however, common, even for offending which results in a loss of less than a million. Of course, a guilty plea at the first Crown Court hearing, a defendant with no previous convictions, and other mitigating circumstances can result in a substantial reduction in the sentence.
Where there has been a conviction for fraudulent trading, legal confiscation proceedings for the lost assets may be brought by the prosecution.
HOW WE CAN HELP
We don’t just understand the law we understand business, we have solicitors with Business Studies Degrees. We have a working knowledge of the difficulties faced in running a business. We combine good legal advice with sound commercial background.
We know it is very stressful to be facing one of these charges, it will often follow a business going into liquidation which is stressful enough but then to be accused of fraud aggravates the stress.
We will work with you and support you throughout. We will ensure that every angle is covered to defend you against these charges. We work with the best barristers in the business and will put together a team appropriate to your case to ensure you get the best result possible.
For a free and honest initial assessment of your case call us on 01623 397200.