Fraudulent trading first offence in the UK

The financial sector, both in the UK and on a global scale, is subject to a wide range of different controls and regulations. There are strict rules covering what you can and can’t do in a range of different privileged positions; breaking these rules can result in serious legal repercussions.

Trading decisions are often made under stressful conditions, with assessments made retroactively. If you suspect that you might be under investigation for fraudulent trading, it’s important that you take the right steps to prepare yourself. 

Getting advice from an experienced fraud solicitor should be your number one priority, to ensure that you can limit any damage going forward and start to work on a legal defence if necessary. Time will likely be of the essence, particularly if the investigation against you is already underway.

 

What is fraudulent trading?

As a result of how serious and complicated fraudulent trading cases can be, they’re dealt with under a separate act from other, more ‘general’ fraud cases. Depending on how the offence is carried out, it may result in charges under the Insolvency Act 1986, the Companies Act 2006, or other specifically created pieces of legislation. 

In most cases, fraudulent trading consists of a party continuing to trade a business with the intention of defrauding creditors of the company, or any other relevant shareholder.

In practice, this will mean that the party (typically a company director) will intentionally misrepresent the position of the business, in order to bring about personal gain or loss to another.

Because acts of fraudulent trading are often carried out via an intermediary body – the company in question – it can make the process of developing both a prosecution and defence a lot more complicated than with other cases of fraud. All sorts of connections need to be made and proven, which can be a monumental task.

While often associated with insolvent businesses, fraudulent trading is not an offence that’s limited to these circumstances. It can be carried out whether the business has already been, is in the course of being, or will not be wound up. 

 

Examples of fraudulent trading

Fraudulent trading activities can take a wide range of shapes and forms. Below are just a few examples:

• Accepting credit from a bank or other party with the knowledge that the company will not be able to repay that credit.
• Lying about the business itself, the qualifications or level of experience of company employees, or manipulating other data in order to make the business look better than it is.
• Accepting orders from customers and taking payment, without the intention of providing the service or product.
• Continuing to trade while the business in question is insolvent and should not legally be trading.
• Falsifying company records, in order to make the company appear more profitable than it is. 

This is not an exhaustive list of potential fraudulent trading examples, and it’s important to recognise that these crimes can often result in multiple charges under different acts, including more general fraud charges and tax evasion-related laws.

 

Sentencing for fraudulent trading

Fraudulent trading is a serious crime to be convicted of, which is reflected in the sentencing guidelines. As with convictions under the Fraud Act 2006, if found guilty on indictment for fraudulent trading under the Companies Act 2006, you could face up to ten years in prison, in addition to a fine.

Sentences towards the upper end of this maximum will only apply in the most serious of circumstances. The defendant would likely have to have been operating in a senior position in a broader criminal conspiracy, in part of an ongoing scheme that resulted in considerable harm.

For a first-time offence, particularly if it can be proven that the act of fraud was carried out in an unplanned or opportunistic manner, you would likely receive a far more lenient sentence. 

It’s impossible to make a closer estimation of the sentence you’ll likely be facing without having access to the relevant facts of the case; to understand probable legal ramifications, you’ll need to consult with a criminal defence solicitor.

 

Veil of incorporation

It’s true that in many business contexts, directors and other relevant parties are legally protected as a result of the business entity being separated from its members. 

This ‘veil of incorporation’ can, however, be lifted in certain situations where directors have acted in specific inappropriate ways – such as when they’ve acted with the intent to commit fraud. 

 

Other ramifications of a guilty verdict

In addition to a custodial sentence and a substantial fine, being found guilty of fraudulent trading – even as a first-time offence – can have other substantial negative effects on your life.

Under the Company Directors and Disqualification Act 1986, the court can decide to ban you from running a company again, for up to 15 years. In addition to a fine, you will also likely be required to return any of the proceeds that were taken as a result of the fraudulent trading activities.

 

Seeking legal assistance

If you’ve been charged with fraudulent trading, or believe that you may face charges in the near future, it’s imperative that you seek legal advice as soon as possible.

The legal ramifications of being found guilty extend beyond being barred from directorship and financial penalties – there’s a genuine possibility that you could be facing a custodial sentence as well. Your criminal defence solicitor will be able to:

• Advise you both before and during any interviews under caution you need to attend, whether with the police or another investigatory body.
• Help you to develop an effective defence strategy, arranging for your representation in court if necessary.
• Ensure that the law is applied to your case in a just and fair manner at all times.
• Take you through the appeals process, should it be necessary.

Fraudulent trading cases can become immensely complicated, and it can take a long time to develop a strong defence. The more time that you and your solicitor have to work on it together, the better your chances will be of achieving a favourable result.