Insolvency Service Investigation

Insolvency Service Investigation
Legally reviewed by: Laura Smith

Are You or Your Business Facing an Insolvency Service Investigation?

Are you a company or individual facing potential insolvency? At Cartwright King, we understand the stress and uncertainty such situations can bring. We represent both companies and individuals throughout the insolvency process.

The earlier you involve our experienced legal team, the better equipped you’ll be to navigate these challenges. Therefore, by working cooperatively with relevant authorities, we can often prevent a formal report from being issued to the Insolvency Service’s investigation team.

However, it’s important to be aware that the Insolvency Service also receives complaints from external sources. This includes law enforcement, regulatory bodies, Trading Standards, and even members of the public. Our criminal enforcement team meticulously investigates these complaints and determines whether further action is necessary to protect the public interest.

What is an Insolvency Investigation

If a company’s finances are suspected of being mismanaged, an insolvency service investigation take place, examining a company’s financial records and activities. The investigation may involve interviews, document reviews, and analysis of financial data.

If a company faces financial difficulty, those involved in the management of the business will come under scrutiny and may face criminal allegations over how the business was run before it went into insolvency.  

Investigations are confidential and are conducted in a way that should not pose a risk to the trading of your business. However, third parties, such as suppliers, customers and employees might be required to provide documentation.

What is Classed as Director Wrongdoing?

Director wrongdoing can encompass a variety of different things, which each come with their own consequences. Some common examples are:

The Law on Insolvency Investigations

Section 432(2) of the Companies Act 1985 gives the Secretary of State the power to appoint an inspector(s) to investigate the affairs of a company if it appears the company is being conducted:

Warrants

Section 448 of the Act states that a search warrant can be obtained I there are reasonable grounds of believing:

  • There are on any premises, documents where production has been required but which have not been produced.
  • An offence has been committed for which the penalty on conviction on indictment is imprisonment for a term of no less than two years and there is documentation on any premises relating to whether the offence has been committed.
  • That if production was required, the documents would not be produced but would be removed from the premises, hidden, tampered with or destroyed.

Disclosure

Section 447 of the Act states that the Secretary of State may direct, or the investigator authorised by the Secretary of State may give direction to a company/or any other person to produce documentation or information required.

This power is not restricted for use against the company directors but can additionally be used towards any person connected to the company.

Interviews

It is also possible that company directors, senior management, employees and other persons connected to the company may be interviewed by the Insolvency Service for further information.

Potential Outcomes After an Insolvency Service Investigation

An interview by the Insolvency Service can cause reputational damage to a business as well as well as cause other consequences such as:

  • Issue a Warning Notice.
  • Refer the company to the police for BEIS’s Prosecution Lawyers for criminal investigation.
  • Refer the Directors to the Insolvency Service for Disqualification Proceedings.
  • Apply to the courts to close the business down based on public interest.
  • Refer information to the other regulators to consider disciplinary action against their members. For example: the Institute of Chartered Accountants, or the Solicitors Regulation Authority.

Criminal proceedings can often include offences of fraudulent trading, failure to preserve company accounting records, and failure to disclose property to the Official Receiver. Furthermore, failure to cooperate with the investigator can result in an allegation of contempt of court, which can lead to term of imprisonment or a fine.

Why Choose Cartwright King Solicitors?

At Cartwright King, our corporate and financial crime solicitors can guide you through an Insolvency Service investigation. By identifying what information has been asked of your business we can work with you to address the issues and mitigate any potential risks to you or your business.

Frequently asked questions.

What offences can be investigated in an Insolvency Service investigation?

The following offences can be investigated when looking into insolvency:

  • Fraudulent trading
  • Wrongful trading
  • Misfeasance
  • Transactions at an undervalue or preference.

How long will the Insolvency Service investigation take?

UK law does not specify a specific deadline for such investigations. However, most cases typically take several months to a few years to complete.

Can I continue to run my business during an Insolvency Service investigation?

The answer to this question depends on the circumstances that caused the investigation. If the insolvency investigation is currently proceeding, it’s important to seek legal advice in order to confirm that all actions taken by the business are compliant with UK law. In cases where the investigation results in criminal charges, it may be necessary to suspend or stop business operations until the matter is resolved.

How to avoid a criminal Insolvency Service investigation?

In order to avoid an Insolvency Service investigation, the business director must ensure that they are meeting all legal obligations. Therefore, directors must keep accurate financial records, pay taxes on time and seek financial advice if they are experiencing difficulties. Therefore, it’s important to enter the insolvency process if your business is unable to pay debts. As a result of not adhering to director obligations, you may face a criminal charge.

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