Disclosure of documents subject to implied undertakings
Legal 500 UK 2021
Its investigators can become involved in a case whether or not the company is still trading and whether or not other law enforcement authorities are examining the company’s conduct. At the end of an investigation the Insolvency Service may decide to bring a criminal prosecution or use its civil powers to seek director disqualification orders, bankruptcy or debt relief restrictions.
The penalties for companies and directors found to have breached their duties or committed a criminal offence are severe and it is vital to obtain legal advice if you are the subject of an investigation by the Insolvency Service or consider you are at risk of one in the future. Steps taken at an initial stage can have a significant impact on the direction of the investigation and the outcome of any subsequent proceedings. At Kingsley Napley our understanding of how the Insolvency Service uses, and sometimes combines, the criminal and civil powers available to it enables us to guide you through the process, to ensure your rights are protected throughout and that the best possible outcome is achieved.
An investigation into the conduct of a company and/ or its directors will often be caused by a complaint from a customer, investor or other creditor which suggests serious corporate abuse such as significant misconduct, fraud, scams or sharp practice in the way the company operates. An investigation may also be commenced following an application by the company itself or its shareholders or by a declaration by a court that a company’s affairs ought to be investigated.
The Company Investigations Team is a specialist department within the Insolvency Service which has the power to investigate complaints of serious corporate abuse against limited companies and limited liability partnerships which are actively trading (or which have stopped trading but not entered formal insolvency proceedings). It may also investigate a director’s conduct following formal insolvency proceedings where they have received information that would suggest the director is unfit to manage a company. Investigations into companies that have entered formal insolvency proceedings are conducted separately by insolvent company investigators.
A company may initially be unaware they are the subject of a complaint whilst the Company Investigations Team considers whether to formally investigate. This process can take up to two months. If the decision is taken to conduct an investigation, the company will be informed of the fact but the directors may not be told the specific reason for it or who the complaint was made by. The Company Investigations Team is also not confined to the parameters of the original complaint and may investigate other matters that come to its attention. Legal advice should be sought as soon as a company discovers it is the subject of an investigation in order to consider what the Company Investigations Team is likely to require of the company and its officers and how best to navigate the process.
The purpose of the investigation is to gather as much information as is necessary to enable the investigators to make an informed decision on the outcome of the case and what, if any, further action should be taken. Investigators have wide ranging powers to compel any person (not only officers and agents of the company under investigation) to produce relevant documents, to attend before them for an interview/ meeting, and otherwise to give assistance in connection with the investigation. A search warrant to enter and search premises may be obtained in some circumstances. There are also specific duties to assist an investigation pursuant to the Companies Act 1985 which apply to all past and present officers and agents of the company, including the company’s bankers, solicitors and auditors.
Failure to comply with such duties and requirements can have serious consequences. If a person fails to produce documents when required, refuses to attend an interview, refuses to answer any question put to him by the investigators or otherwise fails to assist, the investigators may certify that fact in writing to the court. The court may then inquire into the case and after hearing any statement which may be offered in defence, may punish the person as if he/she had been guilty of contempt of the court.
Subject to limited exceptions, the answers provided in a compelled interview by the Insolvency Service cannot be used as evidence against an individual in any subsequent criminal proceedings. However, it is important to note that this protection does not extend to civil proceedings, in which such evidence is generally admissible. Similarly, evidence obtained under compulsory powers may be used in director disqualification proceedings. Finally, no such protection extends to pre-existing documents which are required to be produced to investigators. Such documents will be capable of being disclosed to prosecuting bodies and potentially admissible in subsequent criminal proceedings.
The Company Investigations Team has a target of six months in which to complete their investigation. Once completed there are a number of possible outcomes of an investigation:
The Insolvency Service will also issue a press release when it has successfully taken any action against a company or its directors. This is to fulfil its general duty to deter unfit conduct by company directors and individuals.
Criminal investigations are conducted by the Insolvency Service Legal Services Directorate and Criminal Investigations Team and the offences they typically investigate include fraudulent trading; failing to keep accounting records; destroying, mutilating or falsifying company records; and acting as a director when disqualified.
The criminal investigation follows the same format as an investigation by the police or another law enforcement authority. Investigation officers gather evidence and take witness statements. They may also invite suspects to attend an interview under caution. It is vital that an individual invited to attend an interview under caution (whether as a suspect themselves or on behalf of the company) obtains legal advice beforehand and has a solicitor present at any such interview. This is a fundamental right because how a suspect responds to questions in an interview under caution will impact on whether or not criminal charges are brought and can be used as evidence at any subsequent criminal trial.
Once the investigation has been completed a Legal Services Directorate lawyer will then decide if there is enough evidence to provide a realistic prospect of conviction and whether it is in the public interest to bring the case to court. The Criminal Investigations Team follows the guidance set out in the Code for Crown Prosecutors to assist it in deciding whether or not an individual or a company should be charged with a criminal offence. The Insolvency Service guidance states where there is enough evidence a prosecution will usually take place – unless the prosecutor is sure this would not be in the public interest. For further details on criminal prosecutions and the court process please see here.
If convicted of a criminal offence (or if a guilty plea is voluntarily entered), a director may be sentenced to a period of imprisonment (which can be suspended in some cases), a community order and/ or a fine. It is also likely that the Insolvency Service will ask the court to make a director’s disqualification order.
Following conviction the Insolvency Service is also likely to ask the court to make a confiscation order in order to deprive the defendant of the financial benefit of his/ her criminal conduct (confiscation proceedings are brought under the Proceeds of Crime Act 2002).
If convicted of a criminal offence a company may be fined and may be debarred from tendering for public contracts in the future or an application could be made for the company to be wound down.
The specific penalties for some of the most common offences are as follows:
For further information on the issues raised in these FAQs and how we can help you, please contact a member of our team.
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