Matthew Claughton, regulatory lawyer, at Olliers Solicitors considers the latest sentencing guidelines and case law on breach of director disqualification.
The Sentencing Council has issued guidance for sentences for offences of breach of a disqualification from acting as a director. The offence is committed under Section 13 of the Company Directors Disqualification Act 1986. It is an either way offence with a maximum sentence in the crown court of two years imprisonment. The guidelines are in force as from the 1st October 2018.
The current position
Insolvency Service prosecutors frequently produce a ‘Plea and Sentence’ document intending to assist the court. This document will set out features of the case and refer to leading authorities.
A number of the leading cases are set out below. It needs to be stressed that these are invariably crown court sentences that have been upheld or varied on appeal.
- R v Feldman (Joseph) (1981) 3 Cr. App. R. (S) 20 The defendant pleaded guilty to six counts; two of acting as a company director whilst an undischarged bankrupt, one of being concerned in the management of a company whilst an undischarged bankrupt and three of perjury committed during the compulsory examinations with the Official Receiver and the Registrar relating to the first two companies. A sentence of nine months imprisonment on each count was reduced to three months imprisonment on each count concurrent on the basis that he was of previous good character and unlikely to re-offend.
- R v Theivendran (Sundranpillai) (1992) 13 Cr. App. R. (S) 601 The defendant pleaded guilty to eight counts of being concerned in the management of a company whilst an undischarged bankrupt and 2 counts of obtaining credit whilst an undischarged bankrupt. The companies traded honestly and there was no evidence of loss to their clients. The companies were eventually wound up with a deficiency in excess of £200,000, primarily as a result of debts owed to the Inland Revenue and Customs and Excise. These debts were paid off after the winding up of the companies. On appeal sentences of nine months imprisonment on each of the counts concurrently reduced to six months imprisonment suspended for 2 years.
- R v Thompson (William John) (1993) 14 Cr. App. R. (S) 89 Guilty pleas to two counts of being concerned in the management of a company whilst an undischarged bankrupt. On appeal a sentence of 15 months imprisonment concurrent on each count was reduced to 8 months imprisonment concurrent on each count.
- R v Teece (Anthony) (1994) 15 Cr. App. R. (S) 302 The defendant pleaded guilty to taking part in the management of a company whilst an undischarged bankrupt and to failing to disclose debts of £22,000 to the official receiver. A sentence of four months imprisonment and five months imprisonment consecutive was upheld.
- R v Vanderwell (Clive) [1998] 1 Cr. App. R. (S) 439 Guilty pleas to two counts of being concerned with the management of company whilst an undischarged bankrupt; one count of obtaining credit whilst bankrupt (more than £2,600 unauthorised overdraft); one count of obtaining property by deception (forged documents in order to obtain a vehicle); one count of failing to keep proper accounts of business; and one count of concealment by a bankrupt of debts (failure to disclose £79,600 of debts to the official receiver). A sentence of four years and three months imprisonment and disqualification order of 15 years was upheld.
- R v Ashby (Edward Moses) [1998] 2 Cr. App. R. (S) 37 The defendant was convicted following trial of four counts of being concerned in the management of a company whilst an undischarged bankrupt. The companies in question included Tottenham Hotspur plc and Tottenham Hotspur Football and Athletic Company Limited. On appeal a sentence of four months imprisonment was upheld. However, a disqualification order of 7 years was reduced to 5 years.
- R v Terence Freeman [2011] EWCA Crim 2534 D aged 63, guilty pleas to fraudulent trading (6 years’ imprisonment), for acting as a director of a company when an undischarged bankrupt (12 months’ imprisonment concurrent) engaging in business under a name other than that in which adjudged bankrupt (12 months’ imprisonment consecutive on one count), acting in contravention of a disqualification order (12 months’ imprisonment concurrent. D carried out the frauds between January 2006 and February 2009. There were some 335 victims of the fraud and their losses came to a total of about £14 million, approximately £4.4.million of which was recovered.
The new sentencing guidelines
As from the 1st October 2018 the court will be assisted by the Sentencing Council guidelines. The court will firstly look at culpability and determine the offence category. Deceit or dishonesty in relation to the defendant’s role within the company or deliberate concealment of disqualified status will place the case in Category A. All other cases will be in Category B.
The court will then consider the level of harm. Category 1 harm applies where the breach results in significant risk or actual financial loss or significant risk or actual serious non-financial loss. Category 3 harm applies where there is very low risk or little or no harm.
Category 2 applies to all other cases.
Having determined the offence category the court will look at the starting point for the level of offence.
By way of example, a Category A offence with, say, deliberate concealment of disqualified status combined with a Category 1 level of harm would place a defendant with the starting point of 1 years custody and a category range of 26 weeks to 18 months in custody.
Where there is no deceit or deliberate concealment and very low risk or little or no harm the starting point is a medium level community order. The category range is a band C fine to a higher level community order
Factors increasing seriousness
Once the courts have achieved a starting point for a sentence it will look at factors increasing seriousness. Statutory aggravating factors are relevant previous convictions and offences committed whilst on bail.
Other aggravating factors can include whether the breach was committed shortly after the order was made, if the breach was continued after warnings were received, if the breach continued over a sustained period of time, whether multiple companies were involved, whether the defendant was motivated by personal gain, or if the offence was committed on licence or subject to post sentence supervision.
Factors reducing seriousness or reflecting personal mitigation
In essence these factors mirror the aggravating factors above. In other words if the breach was not motivated by personal gain, if the breach was committed after a lengthy period of compliance, if there was a genuine misunderstanding of the terms of the disqualification, evidence of voluntary reparation/compensation to those suffering loss, age/lack of maturity, mental disorder or learning disability, sole or primary care for dependant or relatives.
Reduction for guilty pleas
The court will then take into account any reduction for a guilty plea.
Totality principle
If sentencing for more than one offence the court will consider whether the total sentence is just and proportionate for the overall offending behaviour – in accordance with offences taken into consideration and totality guidelines.
The new guidelines will give clarity where previously no clarity existed. Breach of disqualification from acting as a director is an unusual offence to appear before the courts. Magistrates in particular are not used to sentencing for this offence and the new guidelines should provide the courts with a level of guidance not previously available.
Matthew Claughton
Matthew Claughton is a fraud and regulatory specialist at Olliers Solicitors, Manchester.
If you require representation please contact Matthew Claughton by telephone on 0161 827 7010, by email to matthewclaughon@olliers.com or click here to send us a message.
