Directors and financial crime – an introduction

One of the interesting aspects of employment law is that its boundaries overlap into other “areas” of law – health and safety, personal injury, intellectual property, commercial law, corporate law and criminal law (among others). A good employment lawyer will have a relative grasp of all of these areas (although they won’t obviously be expected to be an expert in these areas as well… employment law is complicated enough!). Every lawyer enjoys learning about the criminal law when they’re a student; it’s arguably the most interesting area of law – behind employment law, of course. The overlap between the two areas of law is therefore worth taking a look at and we’ll start doing so in this introductory post, which will examine the potential criminal liability of company directors for actions (or omissions) that they undertake. It will do so by examining the following elements:

  1. What is financial crime?
  2. What potential criminal liability can company directors incur?
  3. How can directors avoid criminal liability?

What is financial crime?

Financial crime is a crime against property, normally involving the unlawful conversion of property (belonging to one legal or natural person) to one’s own personal use and benefit.

What potential criminal liability can company directors incur?

  • Fraudulent trading (s.993 Companies Act 2006) – fraudulent trading occurs if a person carries on the business of a company with intent to defraud creditors or carries on the business of a company for a fraudulent purpose.
  • False accounting (s.17 Theft Act 1968) – under the Theft Act 1968 it is an offence for an person, dishonestly and with a view to gain for himself or another, or with intent to cause loss to another, destroys, conceals or falsifies any account of recording required for accounting purposes
  • Wrongful trading (s.214 Insolvency Act 1986) – wrongful trading occurs where the directors of a company continue to trade when they knew or should have known that there was no reasonable prospect of the company involving insolvent liquidation and the company then goes into insolvent liquidation
  • Misfeasance (common law) – misfeasance occurs if a director takes inappropriate action or gives intentionally incorrect advice whilst acting for the company

How can directors avoid criminal liability?

Directors should take professional advice from qualified lawyers and accountants to avoid potential criminal liability for their acts whilst a director. In order to avoid the potential for criminal behaviour the business should have transparent and accountable administrative processes which allow for the rapid identification and resolution of potentially negligent of criminal behaviour.

Redmans Solicitors are employment law solicitors based in Richmond and the City of London.