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Fraud Offences Articles

What happens for a First Offence of Fraudulent Trading?

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If you or a loved one are facing an initial fraudulent trading allegation, know that experiencing an overwhelming mix of emotions and an urgency to start your legal response are natural. Fraudulent trading is a grave offence and promptly appointing an experienced criminal defence solicitor can be pivotal to your case. This article aims to demystify fraudulent trading offences. We outline the basics of the offences, list some examples, explain sentencing for first-timers, and evaluate imprisonment risks. We also outline how to get in touch with our team to arrange top-rated legal assistance.

What is the offence of fraudulent trading?

Fraudulent trading is an offence under the Companies Act 2006. For the most part, it involves carrying on a business with intent to defraud creditors, members, or others.

Section 993 of the Companies Act 2006 sets out the offence of fraudulent trading. Under this provision, a person commits the offence if they carry on the business of the company with intent to defraud creditors of the company or any other person, or for any fraudulent purpose.

To secure a conviction for fraudulent trading, the prosecution must establish that:

  • The defendant was knowingly a party to the fraudulent trading, whether an officer of the company or acting on its behalf.
  • The defendant carried on the business with intent to defraud creditors, members, or others or for a fraudulent purpose.
  • Actual defrauding took place when the business was carried on in the manner specified.

Fraudulent trading is a very serious corporate offence. On conviction, the court can impose potentially unlimited fines and disqualify the convicted person from being a director. Due to this being a fraud offence, being found guilty can also lead to imprisonment up to 10 years.

Prosecution typically occurs in the Crown Court due to the severity of the cases. The actual penalties you can expect a court to hand down will depend on factors like the scale of the fraud, losses caused, and the defendant’s level of culpability, as we explore later.

What are some examples of fraudulent trading?

Examples of this offence include:

  • Artificially inflating sales and revenue figures to bolster stock prices or attract investors.
  • Deliberately falsifying financial statements to make a company appear more profitable than it is.
  • Using company funds or assets for personal gain instead of declared business purposes.
  • Hiding liabilities or losses off the balance sheet to evade taxes or debts owed.
  • Racking up excessive debts knowing that creditors won’t be paid when the business fails.
  • Making false representations about partnerships, qualifications, or affiliations to improve a company’s credibility.
  • Bribing public officials to win contracts or gain an unfair advantage over competitors.
  • Ponzi schemes where money from new investors is used to pay fake ‘returns’ to old ones.
  • Pyramid schemes where money is made by recruiting new members rather than from any business activity.
  • Misleading advertising where products are deliberately misrepresented to boost sales.
  • Trading without requisite licences, permissions, or regulatory oversight.

Some of these activities are likely also to lead to other criminal offences being charged, such as tax evasion or fraud by false representation.

What happens if you are suspected of committing fraudulent trading in the UK?

If you are suspected of fraudulent trading in the UK, you are likely to face investigation and potential prosecution under the Companies Act 2006.

Here’s a general outline of what could happen:

  1. Initial investigation – if fraudulent trading is suspected, the Insolvency Service, Financial Conduct Authority, or the police will initiate an investigation. This may involve gathering evidence like company records, financial statements, and witness testimonies. You may be interviewed under caution, where anything said could be used as evidence. Having a solicitor present is advisable.
  2. Arrest or voluntary interview – you could be arrested or asked to attend a voluntary interview at a police station. Even if voluntary, this is serious and may result in charges. Legal representation is again recommended.
  3. Charging decision – after investigating, authorities will consult the Crown Prosecution Service (CPS) on whether to charge you. They will consider if there is sufficient evidence and if it is in the public interest.
  4. Court process – if charged, your case may be tried in the Crown Court before a jury (unless you plead guilty at the first availability opportunity).
  5. Sentencing – if convicted, the court will consider various factors when deciding your sentence. While maximum penalties depend on the offence, non-custodial sentences are possible for first offences depending on circumstances. Potential options include fines, community service, or suspended sentences.

Seeking urgent legal advice is vital if you or someone you care about are facing such accusations, as the exact process will depend on your specific situation.

What is the sentence for fraudulent trading in the UK?

Fraudulent trading is an offence under the Companies Act 2006 that carries a maximum sentence of 10 years’ imprisonment. As mentioned, the offence involves activities like carrying on a business with intent to defraud creditors, shareholders, or others, or for any fraudulent purpose. These are serious harms taken into account when sentencing.

Aggravating factors that may increase the sentence include the scale of the fraud, abusing a position of power, involving others in the fraud, targeting vulnerable victims, trying to cover up the fraud, and previous convictions for dishonesty. Mitigating factors like early guilty pleas, showing remorse, or making amends, on the other hand, may reduce the sentence.

Courts also consider disqualifying fraudulent directors from running companies under the Company Directors Disqualification Act 1986. The Insolvency Service can pursue disqualification for up to 15 years. Serious cases may also prompt the Financial Conduct Authority to take regulatory action. Companies themselves can face compulsory liquidation. Finally, the proceeds of fraudulent trading may be recovered under the Proceeds of Crime Act 2002.

Are there any defences to fraudulent trading?

There are several potential defences that can be raised in response to allegations of fraudulent trading:

  • Lack of intent – the prosecution must prove that you had dishonest intent. If you can demonstrate that you had an honest belief or made a mistake and lacked the intention to deceive, this could provide a defence against the allegations.
  • Duress – if you can show that you were coerced into engaging in fraudulent trading under threat, this may serve as a defence. However, it is important to note that the duress must be immediate or imminent.
  • Necessity – in certain extreme circumstances, arguing that the fraudulent trading was necessary to avoid greater harm may provide a defence. However, it is crucial to understand that the bar for proving this defence is set very high.
  • Procedural defences – if proper procedures were not followed during the investigation or in bringing charges, it may be possible to potentially have the case dismissed on procedural grounds (sometimes referred to as a ‘legal technicality’).
  • Statutory defences – the law surrounding fraudulent trading may provide certain statutory defences that could be explored by legal counsel.
  • Evidence dismissal – legal counsel may seek to have certain evidence ruled as inadmissible if it was obtained improperly. This strategy can significantly undermine the prosecution’s case against you.

Additionally, skilled defence lawyers specialising in fraudulent trading will meticulously analyse the strength of the prosecution’s evidence, search for inconsistencies, and identify any weaknesses in the case against you. As with any crime, raising reasonable doubt is crucial.

If you are facing allegations of fraudulent trading, get the advice of a qualified and experienced fraudulent trading solicitor today to ensure that you build your defence on solid foundations.

Will I go to prison if it is my first time committing fraudulent trading?

It is hard to predict whether a first time fraudulent trading conviction will lead to imprisonment, as judges consider many factors. While fraudulent trading is a serious crime, courts do view first offences as mitigating when determining sentences. This may reduce a prison term substantially depending on the circumstances.

However, judges are usually reluctant to fully suspend sentences given the harm to creditors and public confidence in companies. In any sentencing decision, you can expect the prosecution to emphasise the damage caused and the broader need for deterrence.

The nature and scale of the fraud, defences raised, and other mitigating evidence presented are the most critical factors in deciding whether a first-time offender goes to prison for fraudulent trading. Anyone facing prosecution should, therefore, obtain advice from an experienced fraud lawyer on likely sentencing for comparable cases to see whether imprisonment can be avoided.

Where to get further help

Facing charges or indeed prosecution for fraudulent trading can be deeply concerning, for you, your loved ones, and your work colleagues. Expert legal advice from the earliest stages is crucial to understand your best options. Note that for those with no prior convictions, we can sometimes even prevent charges or achieve acquittals before trial. Contact the team at Stuart Miller Solicitors today for free, friendly advice.

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