UK: Insolvency Act Offences : A Suitable Case for Guidance?

Last Updated: 7 July 2010
Article by Kai Luckham

Those who deal with cases brought by the Department for Business Innovation and Skills (DBIS) for offences under Insolvency Act 1986 Part IX Chapter VI (ss. 353 – 362) will also be familiar with the various authorities often cited by the Department in the sentencing guidance.

Three principal cases (Colfer [1997] EWCA Crim 14361, Beauchambe [1998] EWCA Crim 24112 and Mungroo [1997] EWCA Crim 12933) all tend to demonstrate the serious consequences for those who flout the protection given to bankrupts under the provisions of the Act.

While it can rarely be said that the quantum of monies in respect of which creditors have been defrauded is the only criterion for establishing the length of sentence, there are a number of issues, considered below, which would in this writer's opinion, tend to show that we might soon expect consideration of this field by the Sentencing Council.

Turning briefly to consider the three cases cited above; in the first (Colfer) immediate consecutive sentences of 6 and 12 months imprisonment in relation to failure to disclose £5,000 and then subsequently obtaining a loan of £30,000 were imposed (being reduced from 12 and 18 months respectively).

The case of Beauchambe was far more complex; here there was a serious and very deliberate fraud committed over a considerable period of time by the defendant. In spite of ill health and the considerable age of the defendant, 2 years imprisonment concurrent for a number of offences involving cash and goods (total just less than £60,000) were upheld.

Finally, and some might think most harshly, Mungroo received an immediate sentence of two months imprisonment despite being a man of good character and having an exemplary service record. He failed to use a gratuity of £31,000 (received upon leaving the Army) to pay his creditors, and did not inform the Official Receiver or the Judge in his Bankruptcy proceedings of the award.

Mr Justice Ognall giving judgment indicated that it should "be clearly understood that in all normal circumstances, such conduct does cross the custody threshold".

It can be seen, therefore, that despite the relatively modest sums of money involved, immediate custody can follow for those who flout the protection, and thus attack the basis, upon which the bankruptcy legislation is founded.

It is respectfully submitted that these sentences do not compare particularly well with what one might consider to be the more measured approach taken by the Sentencing Guidelines Counsel in the final guidelines on sentencing for the statutory offences under the Fraud Act 2006.4

In order to achieve sentences similar to those in Colfer and Beauchambe, one would anticipate that a defendant would have had to been in the mid range bracket (eg £20,000-£100,000 and been fraudulent from the outset, professionally planned and either fraud over a significant period or multiple frauds: SGC Guidance page 24) or (for a Benefit Fraud) at the starting point of £60,000, fraudulent from the outset and either significant period of time or multiple frauds (page 26).

To receive a sentence similar to that of Mungroo one would anticipate that a defendant had been involved in conduct extending to a single fraudulent transaction not fraudulent from the start at the starting point of £60,000.

How then can a defendant facing these allegations properly be advised in relation to likely sentence in 2010?

This question may be of wider general public interest in particular in light of the recent case of Dougall [2010] EWCA Crim 10485. In Dougall's case there was a plea of Guilty to Conspiracy to Corrupt.

Lord Chief Justice Sir Igor Judge, having chastised the SFO and Counsel for the defence for suggesting a sentence as part of a plea negotiation, set out guidance to Sentencing Courts that a cooperative defendant under section 73 of SOCPA 2005 should "normally" have his/her sentence suspended if it were less than 12 months.

Plainly this is a different level of criminality. The initial plea and level of cooperation with fraud or corruption authorities were relevant. It has to be assumed that the cooperation had to have started at a very early stage.

Be that as it may, there must be some whose view might be that the outcome of criminality involved in paying some £4.5m to bribe officials in order to make sales of £20m over a four year period, and yet be able to walk away from the Court through the front door, represents something of a travesty.

Clearly, it is impossible to understate the assistance and savings to the public purse which follow upon cooperation with an SFO investigation. It seems, however, that the bigger the case the more likely it is that concept of plea bargaining might be regarded as a major element in case preparation.

One could simply reply that had Messrs. Colfer, Beauchambe and Mungroo cooperated early than they would not have had to go to prison. Other cases, however, also suggest that it is in no way a foregone conclusion that offences involving the failure to disclose assets by bankrupts result in immediate custody.

In Roberts (Leeds Crown Court, February 20106) a former Prison Officer who owed creditors over £128,000 and failed to tell the Receiver about a debt of almost £300,000, a half completed house, a credit card, bank account and high purchase agreements did not receive an immediate custodial sentence.

Possibly even more remarkably, two publicans from Kent (Parker and Hornigold7) who "did a runner" to Spain taking the £200,000 equity from their pub ultimately received custodial sentences that were suspended.

Although the cases cited by DBIS indicate immediate custody it is by no means certain therefore that that will be the ultimate outcome.

What might the public make of these sentences?

Leveson LJ, chairman of the Sentencing Council recently explained the new approach to be taken by judges:

"Under the 2003 Act, judges were required to "have regard to" the guidelines, while recognising, as many said, that they were guidelines not tramlines.  The 2009 Act now states that judges "must follow" the guidelines, except when it is in the interests of justice not to do so."8

We are now in a serious economic recession. Insolvency Act prosecutions by DBIS are likely to increase. Whether or not the Sentencing Council sees fit to address these with Guidelines remains to be seen. Some might say that it would be an impossible task to set out tariffs for such offences given the unpredictable range of variables which might emerge.

In light of the opportunity presented by the Coroners and Justice Act 2009 for the Sentencing Council to take forward work on sentencing so as to engage with a better informed public it is, however, unlikely to be long before Insolvency Act offences are in the headlines again.

This article does not deal with issues arising from the reverse burden of proof under s. 352 (a feature common with many regulatory offences); nor indeed has there been time here to consider the issues arising from the non availability of legal advice in interviews under caution conducted by investigators on behalf of the Official Receiver. What it does do, however, is reiterate the need for early and most diligent preparation from experts when faced with allegations under this complex legislation.

Footnotes

1. http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWCA/Crim/1997/1436.html&query=title+(+colfer+)&method=boolean

2. http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWCA/Crim/1998/2411.html&query=title+(+beauchambe+)&method=boolean

3. http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWCA/Crim/1997/1293.html&query=title+(+mungroo+)&method=boolean

4. http://www.sentencing-guidelines.gov.uk/docs/sentencing_for_fraud_statutory_offences.pdf

5. http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWCA/Crim/2010/1048.html&query=title+(+dougall+)&method=boolean

6. http://archive.bis.gov.uk/newsarchive/nds/clientmicrosite/content/Detail.aspx-ReleaseID=411228&NewsAreaID=2&ClientID=431.html

7. http://www.insolvencynews.com/article/show/Bankrupt-pub-owners-receive-suspended-sentences

8. http://www.sentencingcouncil.org.uk/professional/speeches-articles/2010/05/08.htm

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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