Focus on: Corporate offences

This month we focus on corporate offences.

This extract from the LexisPSL practice note covers:

• Corporate Crimes and Companies Act 2006
• Fraudulent trading
• Falsification of company books
• Failing to prevent bribery

The full note also covers:

• Sanctions busting
• Corporate manslaughter
• Levying payment for safety equipment
• Unlawfully obtaining data
• Notification offence

Corporate crimes and the Companies Act 2006

The Companies Act 2006 (CA 2006) amends and restates much of what is contained in the Companies Act 1985 and Companies Act 1989 together with company law provisions from other statutes. It also amends other legislation in particular the Financial Services and Markets Act 2000 (FSMA 2000).

The Companies Acts contain over 150 offence-creating provisions, many of which must be read in conjunction with various other provisions which do not themselves create offences. Some provisions create summary offences relating to comparatively minor defaults. Typically, these involve failures to notify the Registrar of Companies of matters affecting the company and its constitution or to provide information to shareholders. Other provisions create serious crimes, most of which involve fraud. The distinction is not, however, clear cut, because minor defaults and irregularities will often be associated with more serious crime, for example, where improperly maintained accounts or records are used to conceal fraudulent trading or unlawful dealings with directors. In such cases, an indictment may include counts alleging fraud offences and counts alleging lesser defaults and irregularities, some of which are triable either way.

The main company offences are detailed below.

Fraudulent trading

It is an offence under the CA 2003, s 993 if any business of a company is carried on:

• with intent to defraud creditors of a company or creditors of any other person, or
• for any fraudulent purpose,
• and every person who is knowingly party to the carrying on of the business in that manner commits the offence. This applies whether or not the company has been or is in the course of being wound up.

A person found guilty of an offence under this section is liable on conviction on indictment to a maximum sentence of ten years' imprisonment or a fine or both and, on summary conviction, the maximum sentence is six months' imprisonment or a fine not exceeding the statutory maximum (currently £5000) or both.

The Sentencing Guidelines Council's Guidelines Sentencing for Fraud do not apply to offences under s 993.

A director may also be disqualified from acting as a director for a maximum of 15 years.

Falsification of company books

A company is insolvent where it cannot pay its debts when they are due or its liabilities exceed the value of its assets, or both. When a company becomes insolvent it will be wound up by the Insolvency Service under a statutory scheme which administers the assets of the company and the claims of the creditors fairly.

Under the  Insolvency Act 1986 there are provisions which create criminal offences arising out of unfit conduct by directors where a company has become insolvent. Where a company is being wound up, an officer or contributory of the company commits an offence if he destroys, or falsifies any company books or securities, or makes or is privy to the making of any false or fraudulent entry in any register, book of account or document belonging to the company with intent to defraud or deceive any person.

Failing to prevent bribery

This offence  (Bribery Act 2010,s 7) applies to commercial organisations only.

It occurs when a person (G) associated with such an organisation (H) bribes another person with the intention of obtaining or retaining business, or business advantage, for H.

In this respect:

• a commercial organisation is an incorporated body or partnership formed under UK law or carrying on business in the UK
• G is an associated person if they perform services for H--the test is not one of control, so agents, distributors, joint venture partners etc, as well as employees and subsidiaries, are associated persons
• the bribery may occur in the UK or elsewhere
• G's intention need not be dishonest and H does not have to know about the bribery
• it is a defence for H to prove it had adequate procedures in place against bribery

The Ministry of Justice's (MoJ) guidance sets out a list of six principles that should inform a commercial organisation's procedures to ensure that they are adequate.

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