Desperate directors turn to fraud

As company directors come under increased pressure, figures suggest financial crime is on the rise...

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Last Updated: 31 Aug 2010

Director disqualification at insolvent companies soared by 72 per cent in the year ending March 2009, according to law firm Wedlake Bell – suggesting that the pressures of the downturn are driving some company bosses to crime. The figures, which are based on data from the Insolvency Service, show that 1,852 directors from 1,079 companies have been banned for various financial misdemeanours in the last year, including fraud, theft and tax evasion. Clearly desperate times sometimes lead to desperate measures…

No fewer than 91 companies had directors banned last year, a 31% increase on last year. According to Wedlake Bell, there was a 42% rise in the number of companies banned for making dodgy transactions when they were technically insolvent – like directors transferring funds to members of their family. Underpaid tax and accounting failures were the most common individual charges, brought against 1,035 people – including a 67% rise in the number of directors banned for creating phoenix companies (where the assets of an insolvent company are transferred to a newly created business, leaving creditors with nothing but debts). And at the same time, the number of directors facing criminal charges (like fraud and theft) shot up 72% in the 12-month period.

All these 1,852 miscreants will now be banned from holding directorships for up to 15 years. And the chances are that they only represent the tip of the iceberg. Wedlake Bell partner Edward Starling thinks it will be years before we know the true extent of the problem, since there’s usually a long delay between companies going down and the discovery of this kind of fraud. And with so many companies currently biting the dust – according to the latest Insolvency Service figures, 5,000 went bust in the first three months of the year alone – it’s clear that UK directors will find life increasingly difficult this year.

We shouldn’t be too surprised by these figures: fraud tends to rise in the wake of a recession, as severe financial pressures usually bring out the worst in people. But it’s still bad news (unless you’re an insolvency lawyer, perhaps): trust in UK plc has already been badly affected by recent events, and statistics like this don’t help – particularly if creditors that have been stung once too often by dodgy directors become even more reluctant to invest capital...



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