Dear insolvency practitioner: Chapter 20: Offences and prosecution

2. REVISED REPORTING REQUIREMENTS FOR SUSPECTED CRIMINAL OFFENCES UNDER SECTION 218(4) OF THE INSOLVENCY ACT 1986- AN UPDATE.

3. Reporting of s.11 and s.13 CDDA offences - undischarged bankrupts and disqualified directors taking part in company management.

5. Additional Guidance For Reporting Of Offences Under s218(4) Of The Insolvency Act 1986

6. Insolvency practitioner’s role in investigation - referral to authorising body

9. Official Receiver’s duty to investigate the conduct and affairs of bankrupts

Insolvency practitioners acting as trustee are reminded that the notes to form “IPROH” which is amongst the documents produced by the Official Receiver on the handover of the bankrupt’s estate, require that if the trustee becomes aware of any matters which may require investigation by the Official Receiver under his/her duties imposed by section 289 of the Insolvency Act 1986, he/she should notify the Official Receiver as soon as possible.

Bankruptcy restriction proceedings are a product of Official Receiver’s investigations and these must be commenced within 12 months of the bankruptcy order. It is possible that insolvency practitioners acting as trustee may discover conduct such as a failure to disclose assets or asset disposals which the Official Receiver may not have been aware of. Such conduct might form the basis of an application for a Bankruptcy Restriction Order and/or referral of a criminal offence to a relevant prosecuting authority and insolvency practitioners should notify the Official Receiver of it as soon as it is discovered rather than wait until their own enquiries or recovery action has been completed.

Any enquiries regarding this article should be directed towards Mark Danks, Authorisations: Bankruptcy, 5^th Floor, The Balance, Pinfold Street, Sheffield S1 2GU, telephone: 0114 221 2744, email: mark.danks@insolvency.gov.uk

10. The Duty of Insolvency Practitioners to Report Potential Criminal Offences

This article replaces Chapter 20, Articles 1-8 of Dear IP which have been withdrawn.

This guide deals with the reporting of criminal offences by insolvency practitioners both as a matter of best practice and to fulfil their statutory duties as supervisors of voluntary arrangements, liquidators and trustees to report potential criminal offences.

Practitioners are asked to refer to this guidance before submitting a report alleging a criminal offence in order to assist The Insolvency Service in achieving a successful enforcement outcome.

Insolvency practitioners, when acting as liquidators, or supervisors of voluntary arrangements have specific legal obligations under sections 7A, 262B and 218(3) & (4) of the Insolvency Act 1986 to report criminal offences as detailed under ‘legislation’ listed below and a public interest duty both as a responsible insolvency practitioner and as a professional to report such offences.

Although the statutory duty imposed under these sections are only applicable to liquidators and supervisors of voluntary arrangements, current best practice dictates that administrators and administrative receivers are also encouraged to comply with these requirements should they become aware of a potential criminal matter.

In addition, where an offence of false representations under s6A and s262A of the Insolvency Act is made with respect to a proposal for the purpose of obtaining a voluntary arrangement, whilst there is no statutory obligation that a practitioner reports this potential offence, The Insolvency Service will pass these on to BIS Criminal Enforcement for consideration where appropriate.

With regards to bankruptcy, the trustee has a duty to furnish the official receiver with such information and assistance as he may reasonably require for the purpose of carrying out his functions which would include details of a possible criminal offence.

Potential criminal offences identified by insolvency practitioners in bankruptcies or compulsory liquidations in England and Wales should be reported to the appropriate official receiver. In all other cases (including Scotland) reports should be sent to:

The Intelligence & Enforcement Directorate will review the alleged offence set out the report and the supporting evidence and if appropriate forward it to the relevant prosecuting authority, usually BIS Criminal Enforcement in England and Wales or the Crown Office and Procurator Fiscal Service for Scotland.

Wrongful trading, preferences and transactions at an undervalue are not criminal offences and therefore should not be reported as such, although they may be matters of misconduct.

CVAs - Section 7A - if it appears to the nominee or supervisor that any past or present officer of the company has been guilty of any offence in connection with the moratorium or, as the case may be, voluntary arrangement for which he is criminally liable, the nominee or supervisor shall forthwith report the matter.

Under section 6A it is an offence if an officer of the company, for the purpose of obtaining a voluntary arrangement, makes a false representation or commits a fraudulent act or omission even if the proposal is not approved. Whilst there is no statutory requirement imposed on practitioners to report such offences, The Insolvency Service will pass them onto BIS Criminal Enforcement for consideration where appropriate.

IVAs - Section 262B - if it appears to the nominee or supervisor that the debtor has been guilty of any offence in connection with the arrangement for which he is criminally liable, he shall forthwith report the matter.

Under section 262A it is an offence if a debtor, for the purpose of obtaining a voluntary arrangement, makes a false representation or commits a fraudulent act or omission even if the proposal is not approved. Whilst there is no statutory requirement imposed on practitioners to report such offences, The Insolvency Service will pass them onto BIS Criminal Enforcement for consideration where appropriate.

Compulsory liquidations - Section 218(3) - if in the case of a winding up by the court in England or Wales it appears to the liquidator, not being the official receiver that any past or present officer of the company, or any member of it, has been guilty of an offence in relation to the company for which he is criminally liable, he shall forthwith report the matter to the official receiver.

Voluntary liquidations - Section 218(4) - if it appears to the liquidator in the course of a voluntary winding up that any past or present officer of the company, or any member of it, has been guilty of an offence in relation to the company for which he is criminally liable, he shall forthwith report the matter to either the Secretary of State (England and Wales) or the Lord Advocate (Scotland).

Bankruptcy – Section 305(3) – it is the duty of the trustee to furnish to the official receiver such information, records and assistance as he may reasonably require for the purpose of carrying out his functions. Section 289(1) states the official receiver shall (if he thinks fit) investigate the conduct and affairs of each bankrupt, including conduct prior to the bankruptcy order and report to the court if he thinks fit.

It is important to report offences as soon as possible, both to improve the prospects of successful prosecution, where appropriate, and in the interests of fairness and justice for both victims and potential defendants.

Sections 7A, 262B, 218(3) and 218(4) of the Insolvency Act 1986 are specific statutory duties to report potential criminal offences to the Secretary of State or the Lord Advocate via the Intelligence & Enforcement Directorate of The Insolvency Service or direct to the appropriate official receiver as soon as the facts are known. It is therefore advisable to prepare a separate report when reporting a potential criminal offence, although it is acceptable to highlight criminality in the body of a D1 report instead of reporting offences separately, but only if this does not result in any significant delay in the reporting of an offence.

Since there is no statutory form to report potential criminal offences, a suggested report layout has been prepared to assist practitioners in providing the required information in the first instance:

INSOLVENCY PRACTIONER’S REPORT TO INSOLVENCY SERVICE REGARDING POTENTIAL CRIMINAL ALLEGATIONS

Depending on the case type, this form should be submitted to the Insolvency Service as follows:

For non-compulsory liquidations, administrations, administrative receiverships and voluntary arrangements, to

For compulsory liquidations and bankruptcies, to the official receiver dealing with the case.

Practitioners should ensure that they include sufficient evidence to establish that a prima facie case exists.

Practitioners can assist The Insolvency Service and prosecuting authorities by providing copies of all relevant documentation or other evidence with reports. Details of the documentation that is likely to be required as evidence for particular offences is detailed in ‘common offences’ at section 4 below.

· a copy of the statement of affairs and, in voluntary arrangements, of the proposal

· copies of any statements, notes, questionnaires submitted by company officers or individual debtors

· where allegations are made against someone in the role of a company director who was not formally appointed, evidence that they acted as a director

· details any other known proceedings initiated by you or by another party - for example, the Police, HMRC or SOCA

If practitioners become aware of possible breaches of disqualifications or restrictions or other misconduct in connection with live companies in England, Wales or Scotland, these should be reported via The Service’s investigations hotline.

Reports of possible criminal offences are assessed by The Insolvency Service, taking into consideration:

Where appropriate and within The Service’s powers, enquiries may be made with the practitioner and other relevant parties to obtain further information. A decision will then be made within the Intelligence & Enforcement Directorate of The Insolvency Service to either:

· forward the case to the Business Innovation and Skills Criminal Enforcement (BISCE) section for consideration by lawyers (E&W) /Procurator Fiscal Depute (Scotland) or another relevant prosecuting authority for criminal investigation and prosecution; or

The Insolvency Service will also consider whether any other action, such as disqualification or bankruptcy restrictions, should be taken in the public interest.

If the prosecuting authority decides to investigate, practitioners will usually be asked to make a witness statement and may be required to attend Court to give evidence during the criminal trial.

4. Common offences which might be reported under sections 7A, 262B and Sections 218 (3) & (4) of the Insolvency Act 1986.

To assist practitioners, suggested documentary evidence, or other relevant information that is likely to be required for some common offences is detailed below:

s7A - A company commits an offence in connection with the moratorium and/or the voluntary arrangement

Note: Under section 6A it is an offence if an officer of the company, for the purpose of obtaining a voluntary arrangement, makes a false representation or commits a fraudulent act or omission even if the proposal is not approved. Whilst there is no statutory requirement imposed on practitioners to report such offences, The Insolvency Service will pass them onto BISCE for consideration where appropriate.

s89 - Declaration made without having reasonable grounds for the opinion that the company will be able to pay its debts in full

· has there been a civil recovery as an ‘undervalue transaction’ or ‘preference’?

· details of attempts to recover records – copy correspondence with director.

· the effect of the failure to deliver the records e.g. has the insolvency practitioner been unable to collect assets, verify asset disposals, verify unexplained cash withdrawals from company bank accounts etc.

· evidence that it was made for the purpose of obtaining the consent of the creditor or creditors to an agreement

· confirmation that the provisions of s216 were drawn to the director’s attention in writing*

· evidence that the successor business/company is using the prohibited name in cases where it is not evident from Companies House

*The provision applies to any person who was a director or who acted as a director or shadow director in the period of 12 months ending with the day before the company went into liquidation. A standard letter setting out the 216 provisions should be sent to all such persons. To assist practitioners a suggested draft of this letter is below:

RE: [COMPANY NAME] LIMITED (IN LIQUIDATION)

I refer to the fact that [Company Name] Limited went into [creditors’ voluntary liquidation] on [date] and I have been appointed as its liquidator.

Your attention is drawn to the provisions of Section 216 and 217 of the Insolvency Act 1986 which are briefly explained below.

As you were [acting as a director of] [a director of] [liquidated company name] at any time in the period of 12 months ending with the day before the company went into liquidation you are prohibited from using any name by which [liquidated company name] was known, including any trading names, or a name which is so similar as to suggest an association with that company.

The restriction from using a prohibited name applies for the period of 5 years beginning with the day on which [liquidated company name] went into liquidation and except with the permission of the court you cannot:

b) be in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of any such company, or,

c) be in any way, whether directly or indirectly, be concerned or take part in the carrying on of an unincorporated business under a prohibited name.

Your attention is also drawn to Rules 4.226 to 4.230 of the Insolvency Rules 1986 which provides three exceptions to the restriction imposed by Section 216 of the Insolvency Act 1986.

You should note that it is a criminal offence to contravene Section 216 of the Insolvency Act 1986 and if you act in contravention of this section you are liable on conviction to imprisonment and/ or a fine.

Your attention is also drawn to Section 217 of the Insolvency Act 1986, which provides, amongst other things, that a person who is involved in the management of a company in contravention of Section 216 of the Insolvency Act 1986 is personally liable for any debts of the company incurred during the period of that involvement.

A copy of Sections 216 and 217 of the Insolvency Act 1986 is attached together with a copy of Rules 4.226 to 4.230 of the Insolvency Rules 1986. *

If you have any doubts about the contents of this letter, please discuss them with me direct. Alternatively, you may wish to seek legal advice. If you do not know the name of a solicitor to contact, you may find that your local Citizens’ Advice Bureau will be able to offer you some assistance.

* A copy of these extracts of the legislation can be provided to practitioners on request.

· full details of efforts made to enforce co-operation by director (copy correspondence, notes of telephone calls etc)

s262B - A debtor commits an offence in connection with a voluntary arrangement

Note: Under s262A of the Insolvency Act 1986 it is an offence if a debtor, for the purpose of obtaining a voluntary arrangement, makes a false representation or commits a fraudulent act or omission even if the proposal is not approved. Whilst there is no statutory requirement imposed on practitioners to report such offences, The Insolvency Service will pass them onto BIS for consideration where appropriate.

s11 - Undischarged bankrupt acting in the management of a company without the leave of the Court

· detail evidence that the bankrupt/former bankrupt acted in the management whilst undischarged

s13 - Disqualified director acting in the management of a company without the leave of the Court

· detail evidence that the disqualified director acted in the management whilst disqualified

· how the accounting records were collected (e.g. delivered up by a director, taken from trading premises, etc)

· description of the form in which the accounting records were maintained (eg paper, computerised, etc)

· if computerised records, has all the information on the computer been printed off, and is hardware/software in the insolvency practitioner’s possession

· are the records considered inadequate – not regularly recording transactions, dealings, assets and liabilities

· which director(s) were responsible for ensuring that adequate records were maintained

· the consequences of the lack of records – delay in collecting book debts, verifying creditors claims, unexplained cash withdrawals, assets disposals and transactions

· have the creditors potentially or actually lost money because of the inadequacies

· details of the information that the business of the company was/may have been carried on with intent to defraud creditors or any other person, or for any fraudulent purpose

· details of any false statements to creditors and any dishonoured promises to pay enclosing relevant correspondence

· details of any suspicious cash withdrawals, loss of stock, removal or disposal of company property

· details of any false document made, copied or used by an officer of the company or by any other person

Prosecutions will usually only be successful where the loser (e.g. finance company, factoring company etc) is a complainant and is willing to support a prosecution by providing a witness statement. The Insolvency Service will make any relevant enquires, but please provide details of any complaints received with full documentation.

· details of any contact with the factoring company, including any indication they would co-operate with an investigation

Theft of property – sale by officers of property leased or obtained on finance

· details of the legal owner, relevant dates, value and sum obtained from sale/loss to owner

Practitioners are reminded that in addition to their statutory reporting duties and obligations to provide information under sections 7A(2), 262B(2), 218(3) and (4) and s305(3) of the Insolvency Act 1986, they are also required to provide information and assist the prosecuting authority under sections 7A(8), 262B(3) and 219 of the Insolvency Act 1986 and to comply with the guidance set out in SIP1 and SIP2 and the required practice in safeguarding the accounting records (Part 4 of the Insolvency Guidance Paper).

General enquiries about this guidance which relate to non-compulsory cases may be directed to:

Enquiries which relate to compulsory liquidations and bankruptcies should be directed to the official receiver dealing with the case.

Any other enquiries regarding this article should be directed towards Mark Danks, telephone: 0114 221 2744 email: mark.danks@insolvency.gov.uk

Issue 56 of Dear IP contained an article on the duty of insolvency practitioners to report potential criminal offences to The Insolvency Service under Sections 7A, 262B and 218(3) & (4) of the Insolvency Act 1986. It is appreciated that practitioners may be subject to other statutory reporting obligations, one of which is to report suspicions of money laundering or terrorist financing to the Serious Organised Crime Agency (“SOCA”).

It is also appreciated that insolvency practitioners may be concerned about the offence of “tipping off” in relation to cases where they consider that they may be required to submit dual reports to both SOCA and The Insolvency Service and whilst it is for the individual practitioner to consider his/her obligations depending on the specifics of the case, Section 333D (1)(b)(i) of the Proceeds of Crime Act 2002 provides that there is no tipping off offence if the disclosure is for the purpose of the detection, investigation or prosecution of a criminal offence.

Any enquiries regarding this article should be directed towards Mark Danks 5^th Floor, The Balance, Pinfold Street, Sheffield, S1 2GU telephone: 0114 221 2744 email: mark.danks@insolvency.gov.uk

Article 10 of Chapter 20 of Dear IP, which was published before the roll out of Action Fraud across all the UK Police Forces, is aimed at insolvency practitioners acting as office holders who have a statutory obligation to report offences under the provisions of sections 7A, 262B and 218(3) & (4) of the Insolvency Act 1986 and therefore does not include insolvency practitioners acting as administrators. However the Insolvency Service will accept reports of criminality from administrators as they provide valuable intelligence, but administrators may also submit reports to other agencies, including Action Fraud.

Whilst practitioners acting as office holders with a statutory obligation to report criminality to the Insolvency Service should continue to do so in accordance with the guidance set out in Article 10, if the alleged offence is not one of those mentioned in that Article, they may also wish to consider reporting it to Action Fraud.

The majority of reports which insolvency practitioners are likely to make to Action Fraud will be where they are reporting as a third party and not the victim. Whilst victim consent is desirable Action Fraud will also accept information reports where such consent is not available (http://www.actionfraud.police.uk/information-reports).

Insolvency practitioners may also wish to consider if Action Fraud’s Business Reporting Tool (http://www.actionfraud.police.uk/BRT) is the most appropriate method of uploading crime and information reports for the cases they deal with.

Any enquiries regarding this article should be directed towards Mark Danks, Insolvent Targeting Team, 3rd Floor, Cannon House, 18 Priory Queensway, Birmingham, B4 6FD telephone: 0121 698 4236 email: mark.danks@insolvency.gov.uk

The Insolvency Service’s Breach Team deal with breaches of section 216 of the Insolvency Act 1986 that are reported to us.

A prohibited name is a name by which the insolvent company was known at any time in the 12 months before liquidation, including a trading style, or any name so similar to that name as to suggest an association with the liquidating company.

Our focus is on the rectification of a breach, but where a breach continues, or there are other public interest factors, we may refer the matter to our Criminal Enforcement Team for further assessment and possible prosecution.

In all cases we consider whether any of the exceptions in rules 4.228 – 4.230 of the Insolvency Rules 1986 apply. Rules 22.4-22.7of the Insolvency (England and Wales) Rules 2016 will apply from 6 April 2017.

Whilst compliance is a matter for the director, in many cases they will rely on the advice given to them by the insolvency practitioner. Where relevant, we contact the insolvency practitioner to confirm the advice provided to a director prior to determining whether a criminal referral is appropriate.

In a number of cases, directors have stated that they have complied with the exception in rule 4.228; however, we were unable to accept this as not all elements of the rule had been fully complied with, either at all or at the correct time.

For the exception in rule 4.228 (rules 22.4 and 22.5 from 6 April) to apply all the following elements must be present:

· The person was a director, or shadow director, of a company in insolvent liquidation at any time in the twelve months before liquidation,

· the person acts in any of the ways prohibited in section 216(3) in connection with/for the purposes of carrying on the whole/substantially the whole of the business of the insolvent company, and

· that business is acquired from the insolvent company under arrangements made by the liquidator, administrator, administrative receiver or supervisor of a CVA prior to liquidation (the arrangements may be made with the liquidator etc. by that person, a company or other third party).

· The person intends to be a director of, or directly/indirectly be concerned/take part in the promotion, formation or management of a company known by a prohibited name or directly/indirectly be concerned or take part in the carrying on of a business under a prohibited name in connection with the carrying on of the whole, or substantially the whole, of the business of the insolvent company.

For the exception to apply, notice must be given by that person prior to his acting in the above circumstances to:

· Every creditor of the insolvent company known, or reasonably ascertainable, to that person; and

· The notice may be given and published before completion of the arrangements, but must be published no later than 28 days after completion.

From 6 April 2017, statutory Form 4.73 will be withdrawn. A template that can be used to give notice to creditors and for the Gazette will be published on GOV.UK at Insolvency Service forms: England and Wales (Rule 22.4 – notice to creditors – s216 re-use of a prohibited name). The prescribed content for any notice under rule 22.4 can also be found in rules 22.4 and 22.5.

Whilst not explicit in rule 4.228, Form 4.73 states that notice may not be given under this rule by a person who has already acted in breach of section 216. Rule 22.4 states that notice may not be given under this rule by a person who has already acted in breach of section 216 and this prohibition is further repeated on the template for Rule 22.4.

The Insolvency Service considers that the arrangement is completed at the point at which the agreement is made between the insolvency practitioner and the purchaser to acquire the business.

The date of that agreement triggers the countdown of the 28 day maximum notice and advertising period.

It has become apparent that in some cases the term completion has been taken to mean ‘payment in full’ for the business. Directors have been trading the successor business using a prohibited name, while payment to the liquidator is being made. Notice to creditors and advertising is not being carried out until after payment in full has been made, which has led to the director inadvertently being in breach of section 216 with the consequent personal liability for the new company’s relevant debts. Their only options to rectify the breach are to either change the company/ business name or make an application to the court for permission. Both options may incur significant cost and cannot be applied retrospectively.

The purpose of rule 4.228 is to alert creditors of a company in liquidation to the fact that a person who had been involved in managing that company is also to be involved in managing the successor company or business. To ensure that this purpose is achieved, notice under the rule has to be given to the creditors before that person becomes involved in the management of the successor company/ business under what would otherwise be a prohibited name. This can be seen from the case of Churchill v First Independent [2006].^[1]

A director of an insolvent company agrees with the liquidator to purchase the business for £120K, which is to be repaid over a 12 month period at a rate of £10K a month. The agreement is made on 1 July 2015, the first instalment is paid on the same date and thereafter the balance is repaid on a monthly basis until the £120K is paid off on 01 June 2016.

The agreement is made between the liquidator and the director to acquire the business. In the example above, this would have occurred on 1 July 2015.

If completion of the arrangement was deemed to occur on receipt of payment in full (1 June 2016 in the example above) then this would mean that a director could trade for a substantial period without having to give creditors any notice, which would clearly defeat the objective of rule 4.228.

[1] Churchill v First Independent Factors & Finance Ltd [2006] EWCA Civ 1623

14. New guidance: Reporting misconduct by companies, directors and bankrupts to the Insolvency Service

New guidance on GOV.UK ‘Reporting misconduct by companies, directors and bankrupts to the Insolvency Service’ has been published and our former publication ‘The Investigations Hotline, what it is and how to report misconduct’ withdrawn.

The hotline is no longer used as complaints are now primarily received online.

Whilst the name has changed, our complaint routes and the location of the guidance within the Insolvency Service’s content on GOV.UK remain the same.

The main changes to the guidance are

the hotline is no longer used
the new guidance provides more information about how we deal with the complaints we receive
more detail is provided about the re-use of a company name and the exceptions

Where an Official Receiver or insolvency practitioner is in office then the guidance encourages the complainant to contact the office holder.

Practitioners may find the guidance useful either when reporting matters unconnected to their statutory duties, or to provide information to the public about complaint routes in circumstances where the complaint is not connected to their role as office holder.

Any enquiries regarding this article may be sent to: intelligence.live@insolvency.gov.uk

15. Re-use of company names: New guidance and complaint page

We have published guidance on GOV.UK to provide more information for directors and others about the re-use of company names after insolvent liquidation.

This guidance aims to increase awareness and address some of the common errors where directors have partially complied with the rules. The guidance includes examples of common scenarios, a fuller explanation of the exceptions and considers what action a director might take if they are using a prohibited name including how to apply for permission.

The guidance explains how to complain about the re-use of a company name and how such complaints are dealt. Insolvency practitioners may wish to refer to the guidance where appropriate, for example, when informing a director that a breach may have been committed, or the issues to consider in relation to a proposed successor company.

The guidance can be found on GOV.UK by searching ‘Re-use of company names’ or within the Investigations and Enforcement collection from the Insolvency Service’s home page.

There is a separate page for anyone who would like to complain about the re-use of a prohibited name. This is also located on GOV.UK, within the Investigations and Enforcement collection or can be found by searching ‘Complain about the re-use of a company name’.

Any enquiries regarding this article may be sent to compliance.targeting@insolvency.gov.uk

16. Insolvency Practitioners providing support in Criminal Investigations and Proceedings

Insolvency practitioners play a vital role in the criminal justice system and are valued partners in the criminal enforcement work undertaken by the Insolvency Service. The Service depends heavily upon the skills and expertise of insolvency practitioners in order to effectively tackle financial wrongdoing.

It is common practice for insolvency practitioners to report suspected criminal offences and thereafter to provide relevant documentation supporting this. Occasionally practitioners have been reluctant to provide witness statements, produce relevant documentation or provide critical opinions to assist with any criminal investigation and potential prosecution that may follow.

Unwillingness to provide a witness statement in support of a criminal investigation can often result in a decision taken not to prosecute a criminal offence. This is because without a witness statement, the evidence required sometimes cannot be used and therefore any prospect of a prosecution is stopped in its tracks.

The Insolvency Service pays witness expenses to attend court; there is no similar scheme in place to provide payment for the provision of a witness statement.

Criminal prosecutions are a key element of the enforcement of the insolvency regime and protection of the public from harm. They not only deter offenders, but also frequently lead to disqualification under section 2 of the Company Directors Disqualification Act 1986.

The Insolvency Code of Ethics (Part 2) supports the view that there should be collaborative working between insolvency practitioners and those involved in or considering court proceedings.

Insolvency practitioners’ duties go beyond simply providing documentation following a report of suspected criminal behaviour. It is essential that insolvency practitioners are fully supportive of criminal investigations and prosecutions that take place following a report. This underpins the fundamental principles of the Code of Ethics, particularly around Professional Behaviour. We hope to continue the strong partnership that currently exists between insolvency practitioners and those involved in criminal enforcement in the context of insolvency.

Any enquiries regarding this article may be sent to IPRegulation.Section@insolvency.gov.uk

17. Re-use of a prohibited name and the excepted cases

Guidance has been revised in respect of rule 22.4 of the Insolvency (England and Wales) Rules 2016 and ‘completion of the arrangements’. Guidance on GOV.UK is also being updated to reflect this change and this article replaces Chapter 20, article 13 of Dear IP which has been withdrawn.

The Insolvency Service’s Compliance and Targeting Team (formerly its Breach Team) deal with breaches of section 216 of the Insolvency Act 1986 that are reported.

The Compliance and Targeting Team’s focus is on the rectification of a breach, but where a breach continues, or there are other public interest factors, the matter may be referred to our Legal Services Directorate for further assessment and possible prosecution.

In all cases it is considered whether any of the exceptions in rules 22.4, 22.6 or 22.7 of the Insolvency (England and Wales) Rules 2016 apply (rules 4.228 – 4.230 of the Insolvency Rules 1986 prior to 6 April 2017).

Whilst compliance is a matter for the director, in many cases they will rely on the advice given to them by the insolvency practitioner. Where relevant, contact is made with the insolvency practitioner to confirm the advice provided to a director prior to determining whether a criminal referral is appropriate.

In a number of cases, directors have stated that they have complied with the exception in rule 22.4; however, it is not always possible able to accept this as sometimes not all elements of the rule are fully complied with.

When considering whether an excepted case in rules 22.4 and 22.5 will apply all the following elements must be present:

the person was a director, or shadow director, of a company in insolvent liquidation at any time in the twelve months before liquidation
the person intends to be a director of, or directly/ indirectly be concerned/ take part in the promotion, formation or management of a company known by a prohibited name or directly/ indirectly be concerned or take part in the carrying on of a business under a prohibited name in connection with the carrying on of the whole, or substantially the whole, of the business of the insolvent company
the business is to be acquired from the insolvent company under arrangements made by the liquidator, or made before the insolvent company entered into insolvent liquidation by its administrator, administrative receiver or supervisor of a CVA (the arrangements may be made with the liquidator etc by that person, a company or other third party)

For the exception to apply, notice must be given by that person prior to their acting in the above circumstances as follows:

notice must be given to every creditor of the insolvent company known, or reasonably ascertainable, to that person
notice must be published in the Gazette
the notice may be given and published before completion of the arrangements, but must be published no later than 28 days after completion, and in any event prior to acting

A template that can be used to give notice to creditors and for the Gazette is published on GOV.UK at Insolvency Service forms: England and Wales (Rule 22.4 – notice to creditors – s216 re-use of a prohibited name). The prescribed content for any notice under rule 22.4 can also be found in rules 22.4 and 22.5.

In rule 22.5 it states that notice may not be given under this rule by a person who has already acted in breach of section 216.

The meaning of ‘completion of the arrangements’

The meaning of ‘completion of the arrangements’ has not been defined in the rules

The Insolvency Service previously considered that the arrangement is completed at the point at which the agreement is made between the insolvency practitioner and the purchaser to acquire the business. Having reconsidered this issue, it is now considered that in a case involving a sale/ purchase the completion of the arrangements happens on completion of the sale of the whole, or substantially the whole, of the business. That is the date from which it can be established that the sale/ purchase was completed and ownership/ responsibility for that business has transferred.

Practitioners should note rule 22.4(4)(a) and (b) where notice can be given prior to the acquisition.

The date of completion of the arrangements triggers the countdown of the 28 day maximum notice and advertising period. Obviously, this is subject to rule 22.4(2) and (5) which requires notice to be given before acting in any of the ways set out in section 216(3).

The purpose of rule 22.4 is to alert creditors of a company in liquidation to the fact that a person who had been involved in managing that company is also to be involved in managing the successor company or business. To ensure that this purpose is achieved, notice under the rule has to be given to the creditors before that person becomes involved in the management of the successor company/ business under what would otherwise be a prohibited name. This can be seen from the case of Churchill v First Independent [2006].^[1]

Generally speaking, the 28 day time limit associated with the completion of arrangements takes on importance when the consideration for a purchase/ sale passes in a single transaction.

However, in every case regardless of the form of arrangements, or how they are effected, it is imperative that the relevant notices are given before the director acts in any way in contravention of section 216.

Any enquiries regarding this article may be sent to compliance.targeting@insolvency.gov.uk

^[1] Churchill v First Independent Factors & Finance Ltd [2006] EWCA Civ 1623

RE: [COMPANY NAME] LIMITED (IN LIQUIDATION)

Dated