INSOLVENCY LITIGATION

Insolvency interviews in the context of suspected criminal or regulatory misconduct

6 August 2020

Interviews are frequently conducted by office-holders with individuals previously involved with an insolvent company, such as directors and officers, employees, accountants, lawyers and other third parties. Such interviews will often provide key information regarding the company’s trading and dealings and the actions of its directors and employees, thereby assisting office-holders seeking to investigate potential fraud, misfeasance and other forms of misconduct.

In circumstances where office-holders suspect potential misconduct, interviews present a number of legal and practical complexities.  Those complexities are heightened where connected regulatory and/or criminal investigations or proceedings are contemplated or underway.  This article examines some of these issues.

Should other investigating authorities be consulted in advance of any interviews?

Where fraud and other forms of misconduct are suspected, office-holders should be alive to the potential for connected regulatory and/or criminal investigations by third parties such as the police, the Serious Fraud Office (“SFO”), the Financial Conduct Authority (“FCA”) and the Financial Reporting Council (“FRC”).  In each case, office-holders will need to consider whether any such bodies might have an interest in the matters being investigated before proceeding with interviews with potential suspects or witnesses.

Investigating and prosecuting authorities are increasingly sensitive to the risks of witness contamination and tipping off. For example, the SFO and the FCA have both made clear in published guidance that they place significant emphasis on the first accounts of witnesses.  In its Corporate Co-operation Guidance, the SFO makes clear that it expects companies to consult in a timely way with the SFO before interviewing potential witnesses or suspects, to avoid prejudice to an investigation.  The guidance also asks companies to refrain from tainting potential witnesses’ recollections, for example by sharing or inviting comment on another person’s account or showing the witness documents that they had not previously seen.  Similarly, in Chapter 3 of the FCA’s Enforcement Guide, the FCA states that in certain circumstances it would prefer that a firm does not commission its own investigation, because such action could be damaging to an FCA investigation.  It notes that this is true in particular of criminal investigations, where alerting potential suspects could have adverse consequences.  Accordingly, the FCA recommends that firms consult with it first, if there is a possibility that such investigations could prejudice or hinder a subsequent or live FCA investigation.

In general, therefore, where there is a possibility of a regulatory or criminal investigation into the matters being explored by an office-holder, caution should be exercised before interviews are conducted with potential witnesses or suspects.  Ideally, interviews should not take place until all relevant evidence has been secured (to avoid the risk of evidence destruction) and any relevant criminal or regulatory authorities have been consulted.

What records need to be kept of any interviews?

Office-holders will be used to dealing with requests for information and documents from investigating authorities such as the police, the FCA and the SFO.  In keeping with the importance attached by those authorities to first accounts, office-holders will be expected to keep detailed notes of interviews with potential witnesses and suspects.  Before conducting any interviews, therefore, an office-holder will need to consider how those interviews will be recorded (e.g. tape recorded or conducted with an experienced note taker present), whether those notes will be provided to the interviewee after the interview for approval, what arrangements will be put in place for record-keeping, and whether disclosure to any third parties is intended. 

As explained above, the SFO has made clear that it expects a cooperating company to provide the first (and subsequent) accounts of witnesses.  The FCA will also expect disclosure to be made by authorised firms, in accordance with their obligations under the Principle 11 of the FCA’s Principles for Businesses.  However, neither body has provided any guidance on the form in which such accounts should be recorded and the level of detail that they expect.  In our experience, there are numerous approaches which have been taken by investigators, none of which the main authorities have objected to in principle, even though they may have reservations as to their use in any particular case.  This has ranged from oral reports of what witnesses have said (although generally this is less likely to be acceptable and the FCA has indicated that this may be insufficient), through to disclosure of full verbatim transcripts of interviews. 

In each case, office-holders and their advisors will need to think carefully about the manner in which an interview is recorded, with a view to any potential disclosure to investigating authorities, as well as potential use by the office-holder in any civil proceedings.  Where the office-holder considers that they may seek to rely on the interviewee’s account in future proceedings, it may be prudent to seek the interviewee’s confirmation that any note is accurate, to avoid any challenge to its veracity arising later down the line.

Should an interviewee be cautioned?  Should an interview take place before the court under section 236 instead?

If an office-holder suspects that an interviewee may have committed a criminal offence, and intends to interview the interviewee in respect of that matter, the office-holder should consider whether a formal caution should be given.  A caution is used by the police and other investigating officers when interviewing a person suspected of committing a criminal offence: “You do not have to say anything. But it may harm your defence if you do not mention when questioned something which you later rely on in Court. Anything you do say may be given in evidence.”  

Section 67(9) of the Police and Criminal Evidence Act 1984 (“PACE”) provides that “persons other than police officers who are charged with the duty of investigating offences” shall have regard to the relevant provisions of the PACE Codes of Practice.  Relevant provisions are likely to include paragraph 10.1 of PACE Code C, which provides that a person whom there are grounds to suspect of an offence must be cautioned before any questions about an offence are put to them.  This duty does not only apply to the police.  It also applies to other state investigators, such as those appointed by the SFO and the FCA.  The duty can also apply to non-state investigators, such as privately-engaged security officers who are commissioned for the purpose of investigating a potential criminal offence. 

In the context of an interview by an office-holder, there are circumstances in which an office-holder may potentially fall within section 67(9) of PACE, such that a caution should be given.  In most insolvency-related investigations, office-holders are conducting those interviews solely for the purpose of discharging their statutory duties and are not “charged with the duty of investigating offences”.  In those circumstances, they will not be caught by the ambit of section 67(9) of PACE and will not be expected to give a caution. However, where an office-holder investigating a matter which is also being investigated by a prosecuting authority, intends to explore matters which are relevant to that criminal investigation and envisages disclosure (or intends to disclose) the notes of the interview to that prosecuting authority, section 67(9) may well apply.  This is particularly the case if, for example, the office-holder has discussed the prospect of an interview with the SFO, disclosed the topics and/or questions intended to be asked of the suspect, and committed to sharing the product of the interview with the SFO. In those circumstances, there is a risk that the office-holder might fall within the scope of section 67(9).

In such cases, the best approach is likely to be for the office-holder to conduct any interview by way of a private examination under section 236 of the Insolvency Act 1986.  Such examinations, heard in court sitting in private, strike a balance between the competing interests of the office-holder and the interviewee.  On the one hand, the office-holder gains an opportunity to question the interviewee (often at length) about the promotion, formation, business, dealings, affairs or property of the company, in order to discharge the office-holder’s duties.  On the other, the interviewee has a number of important safeguards which protect their position as regards any related criminal prosecution.  The most important of these is that while the interviewee will be required to provide information by answering questions, their answers will be inadmissible in any criminal proceedings against them by virtue of section 433 of the Insolvency Act 1986 (introduced following the decision of the European Court of Human Rights in Saunders v United Kingdom (1996) 23 EHRR 313).  Therefore, for office-holders, section 236 provides an opportunity to speak with individuals who may otherwise be reluctant to engage, at fear of jeopardising their positions in parallel investigations.  Recognising these competing interests at an early stage is vital for office-holders and their advisers in order to save time and costs being wasted pursuing voluntary interviews with persons who are, for legitimate reasons, not prepared to attend an interview without a court order. 

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We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.

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