Can I Go To Jail For Limited Company Business Fraud? 

The answer to the question Can I Go To Jail For Limited Company Business Fraud? is it will depend upon the circumstances and who is affected by the director’s actions. Cases involving vulnerable victims are typically given priority by prosecuting authorities.

If the company goes into insolvent liquidation (Compulsory Liquidation or Creditors Voluntary Liquidation) then the conduct of the directors will inevitably come under some scrutiny by the appointed liquidator. 

Liquidator’s Reporting On Investigations

In the case of a voluntary liquidation, the liquidator is obliged, as a matter of company law, to answer a questionnaire provided to it by the Insolvency Service on behalf of the Department of Business. In the case of compulsory liquidation, a civil servant known as the Official Receiver, employed by the Insolvency Service, will investigate the directors’ conduct and consider whether or not it is sufficiently serious that it should be referred to the Department of Business for the purposes of not only director disqualification but also potentially criminal proceedings. 

As a general rule, it is uncommon for a company director to go to jail for misconduct when a company goes into liquidation but it does depend on the limited company business fraud undertaken. The number of prosecutions undertaken each year is relatively low when considered against the number of liquidations typically exceeding 20,000 a year. The number of people being subject to criminal proceedings is in the low hundreds out of that pool of liquidations. 

It is possible to go to prison for business fraud without going into liquidation or some other insolvency procedure, such as Administration. Those matters will more typically be addressed by the police and in very serious cases, the Serious Fraud Office. Again, however, the number of prosecutions is relatively low. 

What Could Influence The Prosecution For Business Fraud?

The factors that can influence the prosecution of business will commonly be the scale of the activity and the victims. The greater the number of victims and the bigger the scale of the fraud, then the more likely such conduct will be escalated to be considered by the relevant prosecuting authorities, such as the Insolvency Service. 

Vulnerable Victims

In particular, the nature of the victims is important whether they are considered to be vulnerable. An example of vulnerable victims will be elderly individuals subject to investment scams. 

Conduct That Could Impact On A Director Being Subject To Criminal Proceedings

The Insolvency Act 1986 has various offences that are widely acknowledged as giving rise to criminal proceedings and which lower confidence in the business community. 

Depending on the nature of the offence will impact potentially on whether it is one that criminal proceedings will result. So for example, it is a criminal offence to fail to maintain proper books and records under Section 386 of the Companies Act 1986. However, that offence alone in a run-of-the-mill liquidation may not necessarily result in a director being subject to criminal proceedings. Perhaps more commonly it may be misconduct that is referred to when seeking a director’s disqualification. 

Historical Conduct

Historical conduct will undoubtedly have an impact on whether or not a director of a company that has gone into liquidation is subject to criminal proceedings. A director who acts whilst disqualified is rather more likely to being subject to the prospect of imprisonment following criminal proceedings than a director guilty of misconduct in the first instance. 

Specific Insolvency Act Offences

Another example concerns the re-use of a company name and the restriction imposed by Section 216 of the Insolvency Act 1986. Being in breach of that is a criminal offence and if a further company that uses the name improperly goes into liquidation and creditors suffer loss, then action may be taken accordingly. 

However, perhaps head and shoulders above matters will be conduct that has been deliberately undertaken to defraud creditors when knowing that they would never be paid, such as fraudulent trading, obtaining credit from creditors by deception and failing to supply services after obtaining customer or consumer deposits. 

The Prosecution Test For A Criminal Conviction

Ultimately, a key fundamental issue as to whether a director can go to jail for limited company business fraud will be determined by what is known as the prosecution test and the ability of the prosecuting authority to satisfy the type of threshold set out for instance in the Crown Prosecution Service test, having a realistic prospect of obtaining a criminal conviction.

Without such a test being met, it is more likely than not that after an investigation the Crown Prosecution Service or another prosecuting authority might not take the case forward. 

Nevertheless, being subject to criminal proceedings is undoubtedly a very stressful matter and potentially expensive for a director to defend themselves. 

Get In Touch

If you are concerned about the question of whether or not you could go to jail for limited company business fraud then please do not hesitate to contact us for a free initial consultation to consider the facts and circumstances of your case and we will be only too happy to try to assist you. Such consultation may, subject to the facts of the case, enable your mind to be put at rest about the potential accusations you are concerned about. 

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