|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dear insolvency
practitioner > Chapter 20 > Offences and prosecution
Articles 1 & 2 of the Millennium edition are replaced by this new article. 1. THE STAUTORY DUTY OF LIQUIDATORS TO REPORT APPARENT CRIMINAL OFFENCES UNDER SECTION 218(4) INSOLVENCY ACT 1986 AND RELATED MATTERSIntroduction IPs appointed as voluntary liquidators will wish to be aware that the Insolvency Act 2000 (IA 2000) introduces a procedural change to their statutory duty to report apparent criminal offences under section 218(4) of the Insolvency Act 1986 (IA86). There is no change to the statutory duty to report such apparent offences to the appropriate "prosecuting authority": at present the prosecuting authority for companies wound up in England and Wales is the Director of Public Prosecutions (and for those in Scotland, the Lord Advocate). From 2 April 2001, the prosecuting authority in England and Wales will be the Secretary of State for Trade and Industry. The Lord Advocate will still be the prosecuting authority in Scotland. The prosecuting authority in England and Wales for the purposes of section 218(1) and (6) (where the court directs the liquidator to refer or report apparent criminal offences to the prosecuting authority) will also be the Secretary of State for Trade and Industry instead of the Director of Public Prosecutions. The Legislation Section 10 IA 2000 introduces the above amendments to Section 218(4) IA 86 whilst Section 16 IA 2000 provides that the provisions of IA 2000 are to come into force on such day as the Secretary of State may order ("a commencement order"). That commencement order [The Insolvency Act 2000 (Commencement No 1 and Transitional Provisions) Order 2001 S.I. No 766 of 2001 Commencement Order No 27] will bring section 10 IA 2000 into force on 2 April 2001, subject to the transitional arrangements covered in the explanation below. The position from 2 April 2001 On and after 2 April 2001 any reports alleging criminality for companies wound up in England and Wales should be sent to the Secretary of State for Trade and Industry at the following address: The Department of Trade and Industry Insolvency Service email: Prosecution.Section@insolvency.gsi.gov.uk FROM 2 APRIL 2001 REPORTS SHOULD NO LONGER BE SENT TO THE CROWN PROSECUTION SERVICE (SEE BELOW) UNLESS THEY ARE MADE PURSUANT TO A DIRECTION GIVEN BY THE COURT BEFORE THAT DATE. The position before 2 April 2001 Until 2 April 2001, the prosecuting authority for companies wound up in England and Wales will still be the Director of Public Prosecutions. Any reports before that date should therefore continue to be sent to: The Crown Prosecution Service The position in Scotland The Lord Advocate will remain as the prosecuting authority and reports should be sent to the following address: The Lord Advocate What about administrators and administrative receivers? The statutory duty imposed under Section 218(4) only applies to liquidators of voluntary liquidating companies. Where however an administrator or administrative receiver becomes aware of a potential criminal matter, the facts should be reported to the Insolvency Service’s Prosecution Section at the address given above for advice. How to report in England and Wales IPs should report apparent criminal offences to the Secretary of State as soon as they become aware of the facts. Liquidators are under a statutory duty to report apparent criminal offences forthwith under section 218(4) and should do so in a specific report: it is not acceptable to include criminal allegations in the D return and overlook the specific statutory duty imposed by section 218(4). Rather a liquidator should submit 2 reports in such instances: the criminal matters being reported to the Insolvency Service’s Prosecution Section and the "D" return being submitted to the Insolvency Service’s insolvency practitioners Control Unit in Birmingham as at present. What Prosecution Section will do The Section will take a pro-active role in assessing reports under section 218 received from IPs against the following criteria:
Suggested matters to be considered when reporting potential criminal offences It is suggested that any report alleging criminal offences submitted under section 218 should include the following:
It is suggested that the following information should be provided in support of the more commonly reported offences together with any further information which the liquidator has in the particular case. Section 11 of the Company Directors Disqualification Act 1986 (undischarged bankrupt acting in the management of a company without the leave of the Court)
Further information can be obtained from:
email: steve.quick@insolvency.gsi.gov.uk
email: garry.pett@insolvency.gsi.gov.uk
Or you can contact Prosecution Section by fax on 020 7637 6654email: kirsten.puchoras@insolvency.gsi.gov.uk 2. REVISED REPORTING REQUIREMENTS FOR SUSPECTED CRIMINAL OFFENCES UNDER SECTION 218(4) OF THE INSOLVENCY ACT 1986- AN UPDATE. BACKGROUND IPs will be aware that Section 10 IA 2000 came into force on 2 April 2001 and changed the designated "prosecuting authority" for Section 218(2) (a) IA 86 purposes from the Director of Public Prosecutions (D.P.P). to the Secretary of State for Trade and Industry. As advised in article 1 of this chapter issued in March 2001,with effect from the implementation of IA 2000 on 2 April 2001,all reports in England and Wales pursuant to s.218 (4) IA 86 are to be submitted to the Insolvency Service’s Prosecution Section. Update Prosecution Section thanks IPs for noting the new reporting requirements. Over 130 s.218 (4) reports have been received to date of which 29 have been referred to DTI lawyers for possible criminal investigation. In 9 other cases, formal written warnings have been issued to the directors. Enquiries with IPs and other parties are continuing in a further 42 cases. Following detailed consideration by Prosecution Section, it was decided that insufficient evidence of criminality existed in the remaining 80 reports, and no further action will be taken. The conduct of the directors in those companies will be separately considered by our Disqualification Unit, who will decide whether or not they should be run as disqualification cases. However, over 230 reports have been referred to Prosecution Section in the same period by Disqualification Unit, primarily IPs have set out criminal allegations in their directors conduct reports pursuant to s.7 (3) CDDA 86. IPs are therefore reminded that possible criminal offences by company officers must be reported forthwith to Prosecution Section and should not be incorporated in disqualification conduct returns. The correct reporting of suspected offences should eliminate unnecessary delays in criminal investigations in appropriate cases. Wrongful trading Conversely, IPs are also reminded that wrongful trading, preferences and undervalue transactions are not criminal offences and should therefore not be reported under s.218 (4) IA 86 Guidance in commonly reported offences IPs will recall that guidance in connection with a number of the more commonly reported offences was provided the earlier article (pages 20.3-20.5 refers). IPs are requested to refer to this guidance before submitting a s.218 (4) report, as this will avoid Prosecution Section asking IPs for additional information pursuant to s.218 (4)(b) IA 86 Section 216 Insolvency Act 1986 (restriction on re-use of company name). With regard to s.216 IA 86,IPs were asked to ensure that the relevant provisions were drawn to the directors’ attention in writing. (It should be noted that those provisions should also be drawn to the attention of those persons who acted as directors or took part in the management of the liquidating company). However, it has become evident from reports received that IPs frequently only become aware of an ongoing breach some time after the liquidation. We want to prevent directors from unwittingly committing a s.216 offence, and therefore request IPs to issue directors with a standard letter on the liquidation date, advising them of the relevant provisions irrespective of whether the IP is currently aware of a breach. A suggested draft of this letter, together with the enclosure, is attached at pages 20.9- 20.14. IPs are reminded that the provisions of s.216 applies to any person who was a director or who acted as a director or who took part in the management of the company in the period of 12 months ending with the day before the company went into liquidation. The letter should therefore be sent to all such persons and not simply to the directors in office at the date of the liquidation. Dealing with the company’s accounting records In the region of 40% of s.218 (4) reports concern allegations under s.221/225 CA 85 (failure to maintain or preserve adequate accounting records) or s.208 (1) (c) IA 86 (failure of director to deliver company’s books etc to liquidator). Unfortunately experience has shown that IPs often fail to follow the issued guidance with the result that criminal investigations are commenced only to be abandoned as a result of the inadequate manner in which the IP (who of course reported the potential criminal offence in the first instance) has dealt with the company’s accounting records. This is a waste of the Department’s resources. IPs are therefore reminded that in line with the guidance at page 20.4 they must maintain a list of all records collected, and record the date and manner of collection etc. IPs are also reminded of the guidance at Chapter 17,pages 17.2-17.4 concerning the effect of The Criminal Procedure and Investigations Act 1996. Acting as witnesses Following a report under s.218 (4) Departmental lawyers will decide if any criminal investigation should be undertaken and subsequently whether or not to prosecute. In such cases the IP will usually have been asked to make a witness statement and may well be required to attend Court and give evidence during the criminal trial. The Department recognises that making a witness statement and giving evidence are time consuming and can be stressful. However, your co-operation is essential to the success of the investigative and regulatory regime. IPs are therefore thanked for their co-operation and contribution in this area and are requested to continue to provide such assistance. Click
here to download the section 216 letter (including enclosure) in Microsoft
Word format  Click
here to download the section 216 letter (including enclosure) in PDF
format
3.
Reporting of s.11 and s.13 CDDA offences - undischarged bankrupts and
disqualified directors taking part in company management. Companies in liquidation: Liquidators
are reminded that when they become aware that an undischarged bankrupt or
disqualified director may have taken part in the promotion, formation or
management of a company with which they are dealing, they should report
the matter to the official receiver (compulsory liquidation) or the
Secretary of State (voluntary liquidation) pursuant to s.218 (3) and (4)
of the Insolvency Act 1986 respectively. IPs
will be aware that following the implementation of the Insolvency Act
2000, reports pursuant to s.218 (4) for companies wound up in England and
Wales should be submitted to the prosecution section of the Insolvency
Service. The Lord Advocate remains the prosecuting authority for companies
wound up in Scotland. Liquidators
are reminded that possible criminal offences by company officers should be
reported separately to the appropriate prosecuting authority and should
not simply be included as an allegation of “unfit conduct” in a “D1:
Full Report”. “Live” companies IPs are reminded of the Insolvency Service hotline established by a Ministerial initiative to assist in identifying disqualified directors and bankrupts who are ignoring the restrictions placed upon them. When
IPs become aware, from creditors or others, of possible breaches of
disqualification orders, undertakings or bankruptcy orders in connection
with “live” companies trading in Great Britain, they are requested to
direct complainants to the hotline on 0845 601 3546 or to the Service’s
website at www.insolvency.gov.uk
where a pro forma questionnaire can either be downloaded or completed
online. Complaints
are initially investigated by the Service’s Prosecution Section and, in
appropriate cases, a report will then be submitted to the DTI Legal
Services Directorate (prosecutions) or to the Crown Office in Edinburgh
for possible criminal investigation of offences in England and Wales or
Scotland respectively. Companies in administration or
administrative receivership. IPs will be aware that there are no statutory reporting requirements as regards possible criminal offences by officers of companies in administration and administrative receivership. It is therefore suggested that potential s.11 and s.13 CDDA offences should be reported using the Insolvency Service hotline procedure and that IPs should consider reporting other offences to the police. 4.
Transfer of S.218(4) Work to Birmingham As a result of further
reorganisation of the work of Enforcement Directorate, from
1 April 2004 liquidators should report any potential criminal
offences to the Case Targeting Team at Ladywood House, Birmingham. IPs are reminded that they have a
statutory duty to report matters of a potentially criminal nature, which
is not fulfilled by the submission of a D1 report under the CDDA. In order to streamline the
consideration of these matters a form has been drawn up to assist
liquidators in providing the information required in the first instance.
There are also guidelines detailing the evidence required to
support each allegation. Copies
of the guidance and form are on pages 20.17-19, and 20.20 of this
article respectively. The form should be submitted at the
earliest opportunity, although it may be submitted with the D report if
this does not result in a significant delay.
If it is submitted at the same time as the D report it will only
be necessary to send one copy of the Statement of Affairs and the report
to creditors. Completed forms should be sent to
Case Targeting Team, Enforcement Directorate Ladywood House, 45-46
Stephenson Street, Birmingham, B2 4UZ. If on the basis of the information
provided it appears that further investigation is justified, the report
will be passed to solicitors and you may be contacted by an
Investigation Officer to provide more details. Any queries on this article may be addressed to Tracey McLean, Case Targeting Manager at the above address, telephone 0121 698 4109, email Tracey.McLean@insolvency.gsi.gov.uk
Guidance Notes
For Reporting Of Matters Under S218(4) Of The Insolvency Act 1986 General If you are not submitting this
report at the same time as the D1 report please provide a copy of the
statement of affairs and report to creditors.
If no statement of affairs is available please provide brief
details of the known assets and liabilities. If allegations are made against a
person who was not appointed as a director of the company, provide details
of the evidence showing that they acted as such. Please provide details of any other known proceedings,
either initiated by the liquidator or by another party, eg the police,
Inland Revenue, Customs & Excise. Matters to be
considered in the report: Insolvency
Act allegations: s89 ·
reasons for the change from members’ to creditors’
voluntary liquidation ·
why there were not reasonable grounds for making the
statutory declaration s206(1)(a) –
concealment of property/ s206(1)(b) – fraudulent removal of property ·
details of the nature and value of the property ·
evidence it belonged to the company ·
evidence of non-disclosure/removal ·
any benefits to the perpetrator/detriment to the creditors ·
any explanation given for non-disclosure/removal s206(1)(d) –
false entry in any book/paper ·
details of the false entry ·
the correct state of the company’s affairs ·
any explanation given for the false entry s206(1)(e) –
fraudulently parting with, altering, making any omission ·
details of the document involved ·
the individuals involved ·
any benefit resulting from the action ·
any explanation given for the action s208(1)(a) –
failure to discover, and disposal of, property of the company details of the
nature and value of the property ·
evidence that it belonged to the company ·
evidence of failure to discover and disposal of property ·
evidence that individual involved knew it was company
property ·
benefit to the perpetrator/detriment to creditors ·
any explanation given for the action s208(1)(b) – failure to deliver
up company property ·
details of the nature and value of the property ·
details and evidence showing who has control/custody of the
property ·
any explanation given for the failure to deliver up s208(1)(c) –
failure to deliver up accounting records ·
details of any other individuals who may be responsible for
maintaining the records ·
copy correspondence concerning the obligation to deliver up
the records ·
any explanation given for the failure to deliver up the
records ·
details of the accountants/auditors and any contact
regarding the records ·
details of any specific difficulties caused by the lack of
records, quantified where possible ·
s208(1)(d) – false debt ·
details of the amount of the debt ·
evidence to show it is false ·
intent behind proving the false debt (eg any special
relationship with the supplier) s209 –
destruction/mutilation/falsification of company records ·
details of the destruction/mutilation/falsification ·
the true state of the company’s affairs ·
benefit to the perpetrator/detriment to the creditors ·
any explanation given
s216 – use of a
prohibited name ·
do any statutory defences apply? ·
were the provisions of the section brought to the director’s
attention? s235 – failure
to co-operate ·
details of the requests for co-operation ·
details of any detriment suffered to the administration of
the company’s affairs Companies Act
Allegations: s221/222 –
failure to maintain/preserve company records ·
list the records delivered up ·
detail attempts to obtain the missing records ·
if records disposed of, detail any attempts to verify
explanation given ·
detail any specific matters in which the administration of
the company’s affairs has been hampered, quantified where possible ·
any explanation given for the failure to
maintain/preserve/deliver up ·
details of any contact with auditors/accountants regarding
the records Company
Directors Disqualification Act Allegations: s11 ·
detail evidence that the bankrupt/former bankrupt acted in
the management whilst undischarged s13 ·
detail evidence that the disqualified director acted in the
management whilst disqualified Other
allegations: ·
False accounting re factored invoices ·
details of number and amount of invoices ·
period involved ·
amount currently owed to factoring company ·
details of any contact with factoring company, in
particular if they have indicated they would co-operate with any
investigation/trial ·
any explanation given Report
under Section 218(4) of the Insolvency Act 1986
Signed Dated5.
Additional Guidance For Reporting Of Offences
Under s218(4) Of The Insolvency Act 1986 As
a result of feedback received on the guidance provided in Dear IP
issue 17 regarding the reporting of potential criminal matters under
s218(4) of the Insolvency Act 1986, additional sections have been
added to cover other common allegations. The
guidance notes have therefore been updated, and are set out below.
However IPs should bear in mind that this guidance is not
exhaustive and if other potential allegations come to light, these should
be reported with full details for consideration. GUIDANCE
NOTES FOR REPORTING OF MATTERS UNDER S218(4) OF THE INSOLVENCY ACT 1986 General If
you are not submitting this report at the same time as the D1 report
please provide a copy of the statement of affairs and report to creditors.
If no statement of affairs is available please provide brief
details of the known assets and liabilities. If
allegations are made against a person who was not appointed as a director
of the company, provide details of the evidence showing that they acted as
such. Please provide details of any other known proceedings,
either initiated by the liquidator or by another party, eg the police,
Inland Revenue, Customs & Excise. Please note that
these notes detail the most common allegations and are not exhaustive; any
other suspected offences can and should be reported with full
details. Matters to be considered in the report: Insolvency
Act allegations: s89
·
reasons for the change from
members to creditors voluntary liquidation ·
why there were not
reasonable grounds for making the statutory declaration s206(1)(a) –
concealment of property/ s206(1)(b) – fraudulent removal of property ·
details of the nature and
value of the property ·
evidence it belonged to the
company ·
evidence of
non-disclosure/removal ·
any benefits to the
perpetrator/detriment to the creditors ·
any explanation given for
non-disclosure/removal ·
details of any action taken
to recover/realise the property for the benefit of creditors 206(1)(d) –
false entry in any book/paper ·
details of the false entry
and any information as to the persons involved ·
the correct state of the
company’s affairs ·
any explanation given for
the false entry s206(1)(e) –
fraudulently parting with, altering, making any omission ·
details of the document
involved ·
the individuals involved ·
any benefit resulting from
the action ·
any explanation given for
the action s208(1)(a) –
failure to discover, and disposal of, property of the company ·
details of the nature and
value of the property ·
evidence that it belonged to
the company ·
evidence of failure to
discover and disposal of property ·
evidence that individual
involved knew it was company property ·
benefit to the
perpetrator/detriment to creditors ·
any explanation given for
the action ·
details of any action taken
to recover/realise the property for the benefit of creditors s208(1)(b) – failure to deliver up
company property ·
details of the nature and
value of the property ·
details and evidence showing
who has control/custody of the property ·
any explanation given for
the failure to deliver up ·
details of any action taken
to recover/realise the property for the benefit of creditors s208(1)(c) –
failure to deliver up accounting records ·
details of any other
individuals who may have been responsible for maintaining the records ·
copy correspondence
concerning the obligation to deliver up the records ·
any explanation given for
the failure to deliver up the records ·
details of the
accountants/auditors and any contact regarding the records ·
details of any specific
difficulties caused by the lack of records, quantified where
possible s208(1)(d) –
false debt ·
details of the amount of the
debt ·
evidence to show it is false ·
intent behind proving the
false debt (eg any special relationship with the supplier) s209 –
destruction/mutilation/falsification of company records ·
details of the
destruction/mutilation/falsification and any information as to the persons
involved ·
the true state of the
company’s affairs ·
benefit to the
perpetrator/detriment to the creditors ·
any explanation given
s458
of CA - Fraudulent Trading ·
details of the information
suggesting that the business of the company was/may have been carried on
with intent to defraud creditors or any other person, or for any
fraudulent purpose ·
copies of supporting
documents including losses/claims from creditors ·
details of any false
statements to creditors and any dishonoured promises to pay enclosing
relevant correspondence ·
schedule of increasing
indebtedness including details of any payments made to creditors ·
details of any suspicious
cash withdrawals, loss of stock, removal or disposal of company property ·
excessive remuneration to
officers? ·
details of any property
allegedly sold at an undervalue s216 – use of a
prohibited name ·
do any statutory exceptions
apply? ·
were the provisions of the
section brought to the director’s attention? If so, provide
details s235 – failure
to co-operate ·
details of the requests for
co-operation or for the production of documents or information concerning
the company’s affairs ·
details of any detriment
suffered to the administration of the company’s affairs Companies Act
allegations: s221/222 –
failure to maintain/preserve company records ·
list the records delivered
up ·
details
of the records not delivered up ·
detail attempts to obtain
the missing records producing copy correspondence ·
details of company officers
who may have had responsibility for maintaining/preserving the records ·
if records disposed of,
detail any attempts to verify explanation given ·
detail any specific matters
in which the administration of the company’s affairs has been hampered,
quantified where possible ·
any explanation given for
the failure to maintain/preserve/deliver up ·
details of any contact with
auditors/accountants regarding the records Company
Directors Disqualification Act allegations: s11 ·
detail evidence that the
bankrupt/former bankrupt acted in the management whilst undischarged
producing copies of any relevant documents s13 ·
detail evidence that the
disqualified director acted in the management whilst disqualified
producing copies of any relevant documents Theft Act 1968
allegations s17 - false
accounting - for example re factored invoices ·
details of number and amount
of falsified invoices ·
period involved ·
amount currently owed to
factoring company ·
details of any contact with
factoring company, in particular if they have indicated they would
co-operate with any investigation/trial ·
any explanation given s1 - theft of property - for example sale by officers of vehicles or other pro | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
