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If you or your company are the subject of a creditor fraud investigation, it is highly recommended that you seek legal advice from a solicitor experienced in creditor fraud law, as soon as possible. This way, your solicitor can advise and guide you through the process and work with you from the start to build a strong defence for your case.
Creditor fraud, also known as fraudulent trading, occurs when a business is carried on with the intent of defrauding creditors.
Creditor fraud (or fraudulent trading) is a criminal offence in England and Wales.
The offence is detailed in section 993 of the Companies Act 2006. This states that:
“If any business of a company is carried on with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose, every person who is knowingly a party to the carrying on of the business in that manner commits an offence.”
This offence can be committed whether or not the company is being (or has been) wound up.
Sometimes, businesses which are in trouble will continue to draw on credit accounts when they should have closed down their operations.
In other instances, businesses are set up with the sole intent to defraud. Typically, these businesses will purchase products which they can immediately sell and then disappear altogether. Initially, they may have set up credit accounts which they maintained, in order to appear trustworthy. This is known as ‘long firm fraud’.
On other occasions, businesses may simply purchase as much as they can on credit, sell the goods and then disappear, without building trust first with creditors. This is known as ‘short firm fraud’.
Every person who is knowingly a party to the carrying on of the business fraudulently would be charged. Usually, it is those in managerial positions who are most likely to be charged with creditor fraud. However, those in more junior positions could find themselves charged with aiding and abetting creditor fraud.
Those accused of creditor fraud could be company directors who were attempting to save the business and made some questionable decisions and errors in judgement. Sometimes, those managing the company may not even have been aware of the financial state of the business and the fact that it could not pay its creditors.
It is only when the decisions were made dishonestly that a person can be found guilty of creditor fraud.
In a creditor fraud case, it is the jury who will decide whether or not you acted dishonestly.
A person found guilty of the offence of creditor fraud (also known as fraudulent trading), could be given a maximum prison sentence of 10 years. They may also receive a fine.
The maximum sentence for creditor fraud is only given when a large amount of money is involved and the offending is both blatant and reckless.
The court will first assess the level of culpability of the offender, followed by the level of harm, in order to determine a starting point sentence for a particular creditor fraud case.
Factors which could indicate high culpability include:
Factors which could indicate medium culpability include:
Factors which could indicate lesser culpability include:
The court will then assess the level of harm, taking into account the intended, risked or actual loss suffered.
Risked loss is less serious than intended or actual loss and as such, where the offence caused a risk of loss and no actual loss (or much less actual loss), the court would normally move down to the corresponding point in the next category.
The harm categories for intended or caused loss are as follows:
Category 1: £500,000 or more (starting point based on £1 million)
Category 2: £100,000 – £500,000 or Risk of category 1 harm (starting point based on £300,000)
Category 3: £20,000 – £100,000 or Risk of category 2 harm (starting point based on £50,000)
Category 4: £5,000 – £20,000 or Risk of category 3 harm (starting point based on £12,500)
Category 5: Less than £5,000 or Risk of category 4 harm (starting point based on £2,500)
After the court has assessed the harm and culpability categories for a particular defendant, it will then reach a starting point sentence. The higher the culpability and harm categories, the more likely a long prison sentence will be appropriate.
Mitigating factors are aspects of a case which could result in a lesser sentence.
In creditor fraud cases, these include:
It is also possible to reduce a sentence for creditor fraud by pleading guilty.
Solicitors experienced in creditor fraud have the necessary knowledge and expertise to make a real difference to the outcome of your case.
If you have been accused of creditor fraud, it is vital that you seek legal advice from specialist creditor fraud solicitors, as quickly as possible.
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