JULY 2013
PART 3
ACTION AGAINST ASSETS IN CRIMINAL CASES – CONFISCATION ORDERS
To assist in locating information, a breakdown of this part is as follows:
See Annex A for a flowchart showing the interaction of insolvency and confiscation orders.
9A.54 What is a confiscation order?
A confiscation order is an order that a convicted defendant pay a certain sum of money (the “recoverable amount”, see paragraph 9A.65) representing the defendant’s benefits from crime to the Crown. The order does not, as may be thought, “confiscate” or require the surrender of a particular asset or assets [note1] [note 2].
The purpose of a confiscation order is to deny a person the benefit of property derived from crime (see paragraph 9A.64). The defendant can choose to pay the order voluntarily, but if payment is not made, compulsory enforcement action can be taken (see paragraph 9A.72).
9A.55 Effect of confiscation order on restraint order and assets
A confiscation order does not impose any restriction on the assets of the defendant, although assets required to be sold to satisfy the confiscation order may have already been made subject to a restraint order by the time of the making of the confiscation order (see Part 2 paragraph 9A.14). Any restraint order in place at the time a confiscation order is made will not normally be discharged until the confiscation order is satisfied (see paragraph 9A.20).
9A.56 Application for a confiscation order
A confiscation order may be made on the application of the prosecuting authority or, if the court believes it appropriate to make such an order, on its own motion [note 3]. A confiscation order cannot be made unless the person has been convicted in the crown court, committed to the crown court for sentencing, or committed to the crown court for consideration of a confiscation order (this would follow the person being convicted in the magistrates’ court and the prosecutor making a request for committal to the crown court for consideration of a confiscation order) [note 4].
9A.57 Company – confiscation order made pre winding-up order
The liquidator (in a voluntary or compulsory liquidation) is unable to deal with any property over which a receiver has been appointed in connection with the enforcement of a confiscation order (see paragraph 9A.73) [note 5].
However, where an enforcement receiver has not been appointed, then the liquidator is free to deal with company property unhindered as long as there is no restraint order in force (see Part 2).
Where no receiver has been appointed and no restraint order is in force against a company’s assets, the official receiver may encounter the position where a company’s assets have been offered by the defendant, prior to the winding up order, to help satisfy the confiscation order, and the court/prosecuting authority has accepted that offer. In such a scenario the official receiver should write to the prosecuting authority claiming the assets in the liquidation proceedings.
Where there is a dispute as to ownership of company assets the official receiver should seek to clarify the position with the prosecuting authority. Where monies held in a company bank account are held by the liquidated company on trust for the defendant the monies will not comprise part of the liquidation estate. Additionally, where the court has lifted a company’s corporate veil the assets will not form part of the liquidation estate (see paragraph 9A.81).
9A.58 Bankruptcy – confiscation order made pre bankruptcy order
A confiscation order made before the date of the bankruptcy order does not prevent assets vesting in the trustee. Only the making of a restraint order (see paragraph 9A.27) or the appointment of an enforcement receiver (see paragraph 9A.73) prior to the making of a bankruptcy order does.
Where an enforcement receiver has been appointed prior to the bankruptcy order the assets subject to a receivership will not form part of the bankruptcy estate [note 6]. However, an enforcement receiver appointed pre-bankruptcy is not allowed to use the powers given under the act against property which is comprised in the bankruptcy estate (i.e. assets not subject to the receivership or a restraint order) once a bankruptcy order is in force [note 7] [note 8].
9A.59 Effect of insolvency on confiscation order – confiscation order made post insolvency order
There is nothing in the legislation to prevent the court making a confiscation order simply because a winding-up order or bankruptcy order has already been made in respect of the same company or individual [note 9]. The assets comprised in the insolvency estate will not be available for satisfaction of any confiscation order made [note 8] [note 10].
9A.60 Where restraint order made following a confiscation order
As part of the confiscation hearing, where no restraint order has been made earlier in the proceedings, the court may make a restraint order to prevent the dissipation of assets prior to the confiscation order being satisfied. Where the confiscation order is made prior to the insolvency order and the restraint order is made after the insolvency order, then the assets will fall to the official receiver as liquidator to deal with or vest in the official receiver as trustee [note 11]. The official receiver will, however, be unable to deal with the assets that are subject to the restraint order without a court order, see paragraphs 9A.38 to 40.
Annex A shows the interaction of insolvency and confiscation orders.
9A.61 Debt due under confiscation order not provable
Any obligation arising under a confiscation order made prior to the bankruptcy order is not a provable debt in bankruptcy proceedings [note 12], and a bankrupt is not released from the obligation on discharge [note 13] [note 14].
It is, however, possible that the victim of crime has a provable debt, see paragraph 9A.84.
9A.62 Action to be taken where confiscation order is, or may be, in force
Where the official receiver is aware that a confiscation order has been made the official receiver should contact the relevant authority (see paragraph 9A.7) and inform them of the making of the insolvency order and request a copy of the confiscation order, any restraint order in force and attempt to establish the current position regarding the confiscation order and the appointment, or otherwise, of an enforcement receiver.
Where assets are not covered by a restraint order and the only order in force is a confiscation order, then the official receiver should proceed to realise any insolvency assets after notifying the relevant authority of his/her intention to do so (provided that in the case of a company the corporate veil has not been lifted – see paragraph 9A.57).
9A.63 Third party assets subject to confiscation order
As a consequence of a confiscation hearing and a confiscation order subsequently being made by the court, the official receiver may become aware of previously undeclared assets. An example of this would be where the court rules that the bankrupt has a beneficial interest in a property where legal title is solely owned by his/her son/daughter. Where an enforcement receiver has not been appointed or a restraint order made against assets prior to the insolvency order, then those assets will form part of the estate and be capable of being dealt with by the official receiver as part of the insolvent’s estate.
Where monies or property which have been dealt with at a confiscation hearing can be clearly identified as the proceeds of crime (for example, money in an account which can be directly traced as being stolen from the victim of a crime), then that property should not be claimed for the benefit of the insolvent estate.
Before a confiscation order can be made, the court must first decide whether the defendant has a criminal lifestyle. This will depend on the nature of the offences committed by the defendant [note 15]. The committing of certain offences (e.g. money laundering or drug trafficking) will result automatically in the defendant being held to have had a criminal lifestyle [note 16].
If the court considers the defendant has a criminal lifestyle the court must then determine whether the defendant has benefited from his/her general criminal conduct. If the defendant does not have a criminal lifestyle the court must consider whether he/she has benefited from his/her particular criminal conduct [note 17]. A person benefits from criminal conduct if he/she “obtains property as a result of or in connection with the conduct” [note 18].
The flow chart at Annex D explains the process the court goes through in making a confiscation order.
Where the court decides that the defendant has benefited from his/her general or particular criminal conduct, the court must then determine the recoverable amount. The recoverable amount is the amount specified for payment on the confiscation order [note 19]. This will either be:
(a) The full amount of what the court has found the defendant has benefited by from any criminal conduct; or
(b) The value of all the defendant’s remaining assets (included tainted gifts, see paragraph 9A.75), called the “available amount”, if that is shown to the court’s satisfaction to be less.
Where the defendant proves to the court that the available amount is less than the amount he/she has benefited from (see paragraph 9A.64), then that becomes the recoverable amount (see paragraph 9A.65). The “available amount” is the total of all the free property held by the defendant at the time of the order along with the total value of all tainted gifts [note 20], see paragraph 9A.75. This will then become the amount payable under the confiscation order.
As a confiscation order can be made after an insolvency order, property which is included in the insolvent estate would be excluded when calculating the available amount and would be unavailable in the confiscation proceedings, see paragraph 9A.19.
9A.67 Confiscation order – statement of findings
Where the court determines an available amount as the recoverable amount, the confiscation order must provide a statement of findings as to the matters relevant in deciding that amount [note 21].
9A.68 Matters the court will take into consideration
When determining the recoverable amount the court will consider matters such as proceedings intended or started by a victim of the person’s criminal conduct [note 22] [note 23] (see also paragraph 9A.83) and any representations made by the defendant [note 24] [note 2] prior to making the confiscation order. Having taken these matters into account, the court will, if appropriate, make a confiscation order requiring the defendant to pay a certain amount (which may be a nominal figure if it is shown that the available amount is nil).
9A.69 When payment is due under a confiscation order
The amount to be paid under a confiscation order must be paid on the date the confiscation order is made [note 25].
If the defendant shows that time is required to pay the order the court may extend the due date for payment up to 6 months. In exceptional circumstances the court may extend this time for a further 6 months (see paragraph 9A.72).
To encourage prompt payment interest is payable on the amount of the confiscation order. If the amount is not paid by the date due the amount of interest is added to the confiscation order and treated as if it were part of the order [note 26]. The statutory rate of interest is payable, currently 8% [note 27].
The court has no discretion to waive the interest payment [note 28].
9A.71 Voluntary satisfaction of confiscation order
The defendant is normally given the opportunity to satisfy the confiscation order voluntarily before any enforcement action is taken. It is in the defendant’s interest to pay voluntarily to avoid the liability to pay interest (see paragraph 9A.70), serve a default sentence (see paragraph 9A.72) or to have the costs of a receiver appointed over the assets (see paragraph 9A.73).
9A.72 Enforcement of confiscation orders
The defendant is required to make payment by the date determined in the confiscation order. Where an enforcement receiver is not appointed by the court (see paragraph 9A.73) the order is considered to be a fine and set periods of imprisonment are provided for in legislation for those in default [note 29] [note 30].
If the defendant serves a period of imprisonment in default of a confiscation order this will not extinguish the confiscation order and the order will continues to have effect for enforcement purposes [note 31].
9A.73 Appointment of enforcement receiver
If a confiscation order is not satisfied, the crown court may appoint a receiver, known as an enforcement receiver, in respect of realisable property (see paragraph 9A.4) [note 32]. The powers given to a receiver in the court order of appointment may be wide-ranging to allow for the most effective recovery of the defendant’s assets in order to satisfy the confiscation order [note 7]. Powers given may include the power to manage or otherwise deal with property, other specific management functions conferred by the court, and the power to bring or defend legal proceedings. Third parties holding an interest in realisable property may be ordered to pay the receiver an amount in respect of the value of the beneficial interest that the defendant holds in that property (see paragraphs 9A.78 to 9A.79).
See paragraph 9A.50 regarding the difference between a management receiver and enforcement receiver.
Where realisable property is situated abroad, the prosecutor may forward a request for assistance to the Home Secretary, who may forward the request to the relevant government [note 33]. Where property is then realised abroad, the amount that is realised should be deducted from the amount due under the confiscation order.
Where the defendant has made a gift or transfer of property to another for significantly less that its market value at the time it was transferred, this is known as a tainted gift [note 34]. A gift is a tainted gift if [note 35];
(a) it was made within 6 years before the proceedings (where the court has determined that the defendant has had a criminal lifestyle – see paragraph 9A.64), or;
(b) it consists of, or represents, property obtained by the defendant as a result of, or in connection with, his/her criminal lifestyle (where the court has determined that the defendant has had a criminal lifestyle), or;
(c) the gift was made after the earliest offence was committed (where the court has determined no criminal lifestyle is present).
A tainted gift is considered to be property for the purpose of making or enforcing a restraint order (see Part 2) or a confiscation order and will be included in the recoverable amount.
9A.76 Effect of insolvency on tainted gifts – antecedent recovery
Where a company or a bankrupt has entered into a transaction at an under value [note 36] [note 37], a preference [note 38] [note 39] or a transaction to defraud creditors [note 40], which is also a tainted gift (see paragraph 9A.75), no action may be taken by the liquidator or trustee to recover the value lost to the insolvency estate if the property in question is subject to a restraint order (see Part 2) or over which an enforcement receiver has been appointed prior to the date of the bankruptcy order (see paragraph 9A.73) [note 41] [note 42]. If no restraint order has been made or enforcement receiver appointed, the official receiver as liquidator or trustee, should pursue the antecedent recovery as usual following guidance within Chapter 31.4A or 31.4B.
Any order made to recover the loss (for example, as a transaction at undervalue) to the insolvency estate after the discharge of a restraint order or the discharge of an order appointing a receiver must take into account any realisation of the property already made under PoCA02 [note 43] [note 44]. The recipient of the preference or gift should not be made to pay more than the total value of the property in question.
Further information on antecedent recoveries may be found in Chapter 31.4A and Chapter 31.4B.
9A.77 Action to be taken in respect of a tainted gift
In cases where the official receiver has identified an antecedent recovery and is aware that a restraint order is in force, or an enforcement receiver has been appointed over that asset prior to the insolvency, the official receiver should inform the relevant enforcement authority (see Part 1) or appointed receiver of the making of the insolvency order. The official receiver should attempt to establish the current position regarding the recovery of the tainted gift. The receiver or the relevant enforcement authority (as appropriate) should be asked to note the official receiver’s interest in the matter.
Where the asset is question is not covered by a restraint order or receiver appointed prior to the insolvency order, then the official receiver should take steps to realise that asset.
A confiscation order is an order to pay a sum of money and may be enforced against any property owned by the defendant, including the family home. This is the case even if the property was obtained legally. A solely owned property held by the defendant which is also his/her family home may therefore form part of the amount to be realised under the confiscation order.
Where the property is jointly owned by the defendant’s spouse or partner, their share may not be realised under a confiscation order unless it can be shown that their share was a tainted gift (see paragraph 9A.75) [note 45]. Where a defendant has been found guilty and he/she provided all the funds to purchase the jointly owned property, the court may consider that the spouse or partner’s share is tainted (see paragraph 9A.75). Alternatively the court may accept the integrity of a joint ownership where there has been a long term relationship and the spouse/partner has contributed in other ways.
When considering property, the starting point for the court is to establish what the beneficial interest is of each joint owners. The court will then give consideration as to whether that beneficial interest is genuine or whether it is a tainted gift. The conclusions reached will be used to calculate the defendants interest for the purpose of calculating the recoverable/available amount (see paragraphs 9A.65 to 66).
Third parties with an interest in assets held by the defendant have no right to be heard at a criminal confiscation hearing. At the confiscation stage, the court is tasked with determining the defendant’s free property in order to calculate the recoverable amount (see paragraph 9A.65) in which to make the order for a sum of money.
Any decisions made by the court in relation to third party interests at the criminal confiscation hearing are not binding on third parties as they are not party to the proceedings. The court has held that the appropriate time for a third party to dispute a confiscation order was at the hearing to enforce that order [note 46].
The court cannot appoint a receiver to realise or manage property unless it gives persons with an interest in that property a reasonable opportunity to make representations [note 47] [note 48].
9A.80 Limited Liability Partnerships
The provisions as to the confiscation, recovery, tainted gifts and winding up also apply to limited liability partnerships capable of being wound up under the Insolvency Act 1986 as if they were companies [note 49].
9A.81 Lifting the corporate veil
Where a defendant has used a limited company to carry out criminal acts, the corporate veil may be lifted by the court in certain circumstances. The court will lift the corporate veil where the defendant has acted with impropriety and dishonesty. In lifting the corporate veil the assets of the company will become those personally of the defendant, this will include any specified company assets subject to a restraint order. The value of the assets can be taken into consideration for the purpose of calculating the amount payable under the confiscation order (see paragraphs 9A.65 to 9A.66).
The Court of Appeal has held that the corporate veil can be lifted where:
9A.82 Surplus following satisfaction of confiscation order
Where a restraint order has been made or enforcement receiver appointed prior to the making of the insolvency order, then any surplus proceeds remaining after the satisfaction of the confiscation order and related fees and expenses by the receiver, would fall to the official receiver as liquidator of the company to deal with, or vest as an asset in the bankruptcy estate [note 51].
9A.83 Compensation and confiscation orders
PoCA02 is designed to ensure that compensation for victims and losers takes precedence over confiscation. The court must first make the confiscation order, then fix the amount of the compensation without regard to the confiscation order. Where the defendant doesn’t have enough assets to satisfy both orders, then the shortfall in compensation to the victim/loser should be paid from the confiscated amount. If the defendant has sufficient assets, he/she may end up paying the amount twice over. See paragraphs 9A.145 to 9A.147 on compensation payable in civil cases.
9A.84 Victim may have a provable claim
An obligation arising under a confiscation order is payable to the Crown, and is a distinct liability to that of the liability to the victim of the crime, who may have a provable debt in the insolvency proceedings. Where the liability to the victim is not settled in the bankruptcy proceedings, and the liability arose as a result of fraud or personal injury, then that liability will not be released on discharge [note 52] (see Chapter 40, paragraph 40.178).
[Back to Part 2 – Restraint orders] [On to Part 4 – Civil recovery]