How an Investigation is Triggered
Most investigations are triggered by a report from an Insolvency Practitioner or the Official Receiver, who are under a duty to report unfit conduct or suspected criminality. Common triggers include fraudulent trading (carrying on business with intent to defraud creditors), missing records (failure to preserve accounting records), phoenixism (illegal re-use of a prohibited company name following insolvency), and misuse of COVID-19 support schemes including Bounce Back Loans and CJRS furlough payments.
Investigations into Dissolved Companies
A common misconception is that striking off a company at Companies House ends a director's personal liability. Under the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act, the Insolvency Service has the power to investigate directors of dissolved companies in the same way it would in a formal liquidation. Where misconduct is found, it can apply for a disqualification order of up to 15 years or refer the matter for criminal prosecution.
The Criminal Process — Interviews under Caution
Where the Insolvency Service suspects a crime has been committed, the director will be invited to attend an interview under caution governed by PACE. Anything said in the interview may be used as evidence in criminal proceedings. In many cases, it is possible at this stage to demonstrate that a business failure resulted from market conditions or genuine commercial misfortune rather than criminal intent.
Consequences of Conviction
Fraudulent trading can carry up to ten years' imprisonment. Director disqualification bans a person from acting as a director or being involved in company formation for up to 15 years. Compensation orders can require a disqualified director to personally compensate creditors who suffered loss. Confiscation proceedings under POCA recover any benefit derived from the offence.
What to Do if You Are Under Investigation
If you have received a questionnaire from the Official Receiver or the Insolvency Service, or have been invited to attend an interview under caution, seek specialist legal advice immediately. Do not answer questions or return questionnaires without a solicitor's advice. The distinction between civil disqualification and criminal prosecution can change depending on what is disclosed, and how, at this early stage.