Trends in the prosecution of directors

Trends in the prosecution of directors

Jason Mansell and Polly Dyer, barristers at QEB Hollis Whiteman Chambers, say directors should ensure that they are aware of their personal responsibilities under the Companies Acts and the Insolvency Act 1986, particularly given the range of civil and criminal tools available.

What are the key areas in which prosecutions are currently taking place? What are the reasons behind this?

The Companies Acts and the Insolvency Act 1986 (IA 1986) create what some may consider to be a surprisingly large number of criminal offences.

However, a large proportion are rarely prosecuted, with authorities generally preferring to pursue civil remedies as opposed to launching criminal proceedings.

When prosecuted, prosecutions generally take place for fraudulent trading contrary to section 993 of the Companies Act 2006 (CA 2006) and offences contrary to IA 1986, s 262A (fraud in obtaining a voluntary arrangement) and IA 1986, ss 353–62 (offences concerning bankrupts). Failure to deliver accounts and annual returns also attracts criminal prosecutions, although it is again clear that criminal sanctions are far from the preferred option (more than 150,000 private and public companies in England and Wales were made subject to a civil penalty in connection with the late filing of accounts in 2014/15).

In December 2015, the Department for Business, Innovation and Skills (BIS) unsuccessfully prosecuted three former directors of parcel delivery company City Link for allegedly failing to give statutory notice to the Secretary of State of plans to make staff redundant contrary to section 194(1) of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULR(C)A 1992).

This was the first time action had been taken against directors for a failure to file a form HR1.

While the defendants were ultimately found not guilty, the case was seen as a change of approach for BIS, a result of the government being forced to pay millions of pounds in compensation to staff

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About the author:

Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.

Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.