Guide for Directors - Understanding Your criminal law legal risks

There are a number of ways in which company directors face risks of criminal liability. These include :-

Director criminal liability for fraud

There are a variety of ways in which company directors can expose themselves to criminal liability. This is notwithstanding the general rule that with a limited company, it is generally difficult to "go behind the corporate veil" based on actions in the company's name treated as a separate legal entity from the owners and directors.

Potential director criminal liability for fraud can arise due to :-

• Falsifying documents

• False accounting

• Fraudulent misrepresentation

• Furlough and bounce back loan fraud

Under the Fraud Act 2006, individuals found guilty of fraud through false representation, failure to disclose information, or abuse of position can face up to 10 years in prison and/or an unlimited fine.

While fraud is often associated with criminal cases, it can also be alleged and proven in civil proceedings. However, even if found guilty in a civil court, further criminal action is generally not pursued beyond the civil remedies, such as damages.

Similar to the Fraud Act, fraudulent trading under Section 993 of the Companies Act 2006 or related offenses can result in a maximum 10-year prison sentence and an unlimited fine.

Fraudulent trading occurs when a business is operated with the intent to defraud creditors or for other fraudulent purposes. Ponzi schemes are a common example. Even legitimate businesses can be subject to this offense if they continue to operate while insolvent, knowing they cannot pay creditors.

The Insolvency Service has been actively working to identify and prosecute those who abused coronavirus loan schemes. Their Annual Report for July 2024 details that in the previous year there had been 22 individuals prosecute for their fraudulent activities.

Criminal liability for Health and Safety or Environmental Breaches

Directors of UK companies can face significant legal penalties if their companies are found to be in breach of health and safety or environmental regulations. These penalties can include criminal penalties including fines where directors can be fined substantial amounts, potentially reaching millions of pounds and/or imprisonment in serious cases for directors.

The severity of the sentence often depends on the nature of the breach, the harm caused, and the director's role in the company.

Failing to Prevent Bribery and Corruption in the UK

The Bribery Act 2010 is the primary piece of legislation governing bribery and corruption in the UK. It covers a wide range of bribery offenses, including offering, accepting, and requesting bribes.

Directors can be prosecuted for bribery or corruption offenses under the Bribery Act 2010. Offences include :

• Offering a bribe - offering a gift, loan, or other advantage to a person in a position of authority to influence their decision-making.

• Accepting a bribe - accepting a gift, loan, or other advantage in exchange for influencing a decision.

• Requesting a bribe - demanding or requesting a gift, loan, or other advantage in exchange for influencing a decision.

• Facilitating a bribe - helping another person to offer or accept a bribe.

• Failing to prevent bribery

Our specialist fraud defence lawyers are experienced in advising directors facing criminal investigation or charges. Please do get in contact to find out more about us, how we can help you and your underlying situation.