Allegations of fraud involving senior management or directors of a business is a very serious matter. Our brilliant team of lawyers can help - whatever your enquiry.

Directors duties and role

Directors and shareholders of a limited company have the privilege of trading with limited liability.

However, as a result of this privilege, they have certain duties to the company and each other, and must always act within these duties while carrying out their roles. Directors in particular have many duties to the company. These all center around the duty to act with trust and integrity and confidence.

There are unfortunately times however when a director or shareholder abuses this trust, and the company and those who deal with it may be the victim of fraud carried out by a company director. At Francis Wilks & Jones our team of experts in the area of fraud have many years’ experience of acting in these matters.

A director has a duty not to prioritise the interests of himself over the company and not to reduce the value of the company’s net assets which will have an impact on shareholders in a solvent company and the creditors in an insolvent company.

Fraud in companies – civil and criminal

There are several ways in which fraud can occur. Actions of a director can fall under either civil fraud or criminal fraud, sometimes both.

Fraud involves knowing intention, rather than simply incompetence or negligent management. Below are just a few examples:-

  • misappropriation of funds where a director abuses their position for financial gain. For example, they may put through fraudulent expense claims or misdirect funds to themselves;
  • fraudulent trading – where a director continues to trade with an intent to defraud creditors. If the company later goes into insolvency and it transpires that a director knew insolvency was unavoidable but deliberately hid this to obtain extra credit from creditors. There must have been an intent to defraud creditors or for a fraudulent purpose;
  • the director makes a fraudulent or negligent misrepresentation in the course of negotiating a contract between the company and a third party;
  • failing to make it clear that they are contracting as an agent of the company and not personally;
  • a director can be personally liable for fraudulent trading by the company under the insolvency legislation benefiting from a fraud (knowing receipt, dishonest assistance, unjust enrichment).

There are a number of criminal offences that apply to companies. For example, dishonestly making a representation which is untrue or misleading where the person making it knows that it is, or might be untrue or misleading, or dishonestly fails to disclose to another person information which they are under a legal duty to disclose. These require the intention of making a gain or causing loss or risk of loss to another person.

In civil fraud the standard of proof is the same for civil standards, i.e. the balance of probabilities. If there has been serious criminal fraud then the standard of proof must be beyond reasonable doubt. Bringing a criminal action is therefore inevitably going to be more challenging than bringing a civil action due to the difference in the standard of proof and the ramifications if found guilty.

Fraud proceedings against a director

A civil claim arising out of a fraud must be founded on a recognised civil cause of action.

There are a number of potential actions that can arise under fraudulent actions in a civil court which means that a director can be found personally liable for recompense for the fraud, and the court has very wide powers to make any order they think fit.

These actions are:-

  • fraudulent misrepresentation.
  • the tort of deceit.
  • the economic tort of conspiracy.
  • the economic tort of procuring a breach of contract.
  • breach of contract based on bribery or corruption.
  • breach of fiduciary duty of directors.
  • fraudulent trading.
  • secondary liability claims such as knowing deceit and dishonest assistance.

At the heart of any fraud allegation is dishonesty. These are very serious allegations against a person and although the balance of probability is the standard of proof, courts are reluctant to make orders unless there is some seriously compelling evidence presented to them.

What to do if you suspect fraud, or are accused of fraud

Because of the complex nature of this area, and the potential damage that fraud, and being found guilty of fraud, can do to both a company and its directors, taking legal advice must be your first step.

  • a fraud allegation is very serious, and whatever the outcome, a fraud investigation will inevitably impact a relationship between director and company forever;
  • it is vital that any investigation and action around a potential fraud takes place both correctly and quickly;
  • it goes without saying that if there is a chance that funds are going to be diverted, then the matter needs to be dealt with as a matter of urgency.

At Francis Wilks & Jones we have many years of experience of acting in claims against directors for fraud, as well as defending directors accused of fraud. We have a team in place ready to take emergency action to prevent the diversion of assets and can deal with any investigation and claim involving fraud. Contact our expert team today if you have any concerns at all about the potential fraud by a company’s officer and would like to talk through the issues.

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