Complaints to Secretary of State

All companies, both registered and unregistered, are legally obliged to trade with integrity and not to breach any legal obligations, whether that be in respect of commercial regulations or contractual matters (which may be penalised in the civil courts) or in respect of criminal prohibitions which all citizens of the UK are also subject to.

Since the idea of a limited liability company was introduced, the benefit that this brings (namely that you can run a business without personal risk) has led to such benefits being exploited by individuals acting in a reckless, fraudulent or criminal manner.

Further, and particularly with financial services and investments offered, many such individuals use a company to exploit members of the public by, for example, persuading them to invest in something with an unrealistic rate of return.

Regulation of Fraudulent Companies

If any of these bodies or groups, feel that the company is carrying out a practice which is not in the public interest or if they feel that the directors of the company are trading the company in a way which is not in line with their statutory or fiduciary duties then it is entirely up to the various groups or bodies to make a complaint to the Insolvency Service which acts under the authority of the Secretary of State for Business Energy and Industrial Strategy. 

Not all companies may be trading in breach of the public interest and it is important to distinguish between a company who may provide a poor product or service, or with whom you may have a commercial dispute (or even be owed money) and a company which is:

  • Causing significant harm to stakeholders, including customers and suppliers; or
  • Acting fraudulently; or
  • Having significant irregularities in its affairs or be trading in a way that does not appear to demonstrate integrity or a social conscience.

Companies involved in sensitive regulated areas, such as finance, the law, health and safety, accountancy and pensions (this is not an exhaustive list) also face a higher threshold in terms of the requirements that they demonstrate such integrity and adhere to their duties of care to customers.  This may include advising fully on risks. 

Examples of Fraudulent behaviour

The types of fraud that have led to public interest winding-up petitions are numerous and ever changing as regulation tighten and the wrongdoer moves on to a different type of scheme.

Common examples of such fraudulent behaviour are as follows:

  • VAT Fraud

This is where a company uses the benefit of European rules on VAT and duties upon importing and exporting products across Europe.  Quite commonly a paper transaction carried out on a single day will document sales in the UK of EU goods (which have not paid duty upon import from the EU), for which the buyer reclaims the VAT paid and then exports them back to Europe (with no UK VAT due).  At the same time the selling company is then placed into an insolvency process, thus resulting in a net claim of what could be millions of pounds of VAT.

  • Boiler Room Fraud

This is a reference to companies which cold call individuals using high pressured sales tactics to persuade them to invest in goods which may not be of the value claimed.  The “Boiler Room” tag reflects the pressures that the callers are often under to sell.  When the company is eventually wound-up, it is often the case that little or no assets exist and the investments are worthless.  The types of goods sold can be anything, but some common ones are fine wines, coloured diamonds, rare earth metals and even (more recently) property.

  • Short Firm Fraud

This refers to circumstances where a company may be acquired and its trading history created by regular filings of artificial sets of accounts and other returns over a short period of time (or even over a few years) and potentially even orders made and trade conducted with the eventual objective of building a credit history that enables a large order or investment to be made by a third party.  Once products are delivered or monies loaned, the company for all practical purposes “disappears”.

Remedies

If you have invested money or are in any way a creditor of a company you suspect of acting in such a fraudulent manner, then the options you have are as follows:

1. Issue Proceedings

If there is no dispute as to the amount you are owed, then it is relatively simple to either issue a claim in the county court or present a Statutory Demand, following which (if the debt remains unpaid) you can issue a Winding-Up Petition.

If a company is wound-up then the costs of winding-up will be a first charge above any other sums paid out of the liquidation estate (once the company’s assets are collected in by the Official Receiver or appointed Liquidator).

2. Complain to the Secretary of State

If the above legal proceedings are a cost that you do not wish to incur, or if you do not have the ability to issue such proceedings (you are not a creditor or your claim is not straightforward and clear) then another option is to file a complaint with the Secretary of State.

Complaints may be registered with the Insolvency Service Investigation and Enforcement Services by filling in a form which can be found online here.

It is only worth filing such a complaint where the company falls within one of the three categories listed above.

At Francis Wilks & Jones we have extensive experience of these matters and are able to advise and assist on circumstances where you wish to issue proceedings against a company, either as a litigated claim or to wind-up the company, or alternatively where as a Director you face the threat, or are subject to, Public Interest Winding-Up Proceedings.

Please call any member of our Director Disqualification team for a consultation now on 020 7841 0390. Alternatively please email us with your enquiry and we will call you back at a time convenient for you.