Out-Law News | 10 Nov 2021 | 11:49 am | 2 min. read
The UK Supreme Court has dismissed an attempt by the Crown Prosecution Service (CPS) to confiscate the proceeds of a fraud by directors, because the assets belonged beneficially to a company.
The court rejected the CPS’s argument that the company was debarred from claiming the assets on the grounds that this involved seeking to profit from the proceeds of crime.
Civil fraud expert Andrew Barns-Graham of Pinsent Masons, the law firm behind Out-Law, said: “The decision is extremely welcome news to victims of fraud who wish to pursue civil claims in the English courts. It confirms that the Proceeds of Crime Act 2002 (POCA) and the confiscation regime do not generally interfere with the enforcement of third party property rights under the civil law.”
“It also confirms, consistently with previous authorities, that where a company has been the victim of fraud or other wrongdoing by its directors (including the making of secret profits), then the directors’ wrongdoing or knowledge cannot be attributed to the company as a defence to a civil claim brought by the company or its liquidator,” Barns-Graham said.
The decision confirms that the Proceeds of Crime Act and the confiscation regime do not generally interfere with the enforcement of third party property rights under the civil law
The case arose after two directors of Vantis Tax Ltd (VTL) were found guilty of having exploited their position in breach of their fiduciary duties to VTL to make a secret profit of £4.55 million, through dishonestly facilitating and inducing others to submit false claims for tax relief.
The CPS sought confiscation orders under POCA, but Aquila Advisory, which had acquired the proprietary rights of VTL after the company went into liquidation, said the directors should be treated as having acquired the benefit of the secret profit on behalf of VTL.
It said the money was beneficially owned by VTL, and now Aquila, under a constructive trust; and that Aquila’s proprietary claim to the £4.55m took priority over the CPS’s confiscation orders.
The CPS brought the appeal to the Supreme Court after earlier failing before the High Court and Court of Appeal.
The Supreme Court also dismissed the CPS appeal. It said that the unlawful acts or dishonest state of mind of a director cannot be attributed to the company to establish an illegality defence that would defeat the company’s claim under a constructive trust.
The CPS also argued the civil courts’ approach was inconsistent with POCA, as it allowed third parties to benefit from criminal activity but prevented the victims from being compensated.
However, the Supreme Court said the overall scheme of POCA was not to interfere with property rights. The CPS had not invoked the specific provisions of POCA allowing the state to override property rights in certain circumstances.
Finally, the Supreme Court found that the constructive trust, and VTL’s beneficial ownership of the secret profits, arose automatically when the directors breached their fiduciary duties, and the directors had never owned the secret profits in equity.
Asset recovery expert Alan Sheeley of Pinsent Masons said the case highlighted how civil and criminal law issues can often overlap in disputes involving allegations of fraud or other serious wrongdoing.
“It is extremely important in such cases for the victims to engage a legal team with dual civil-criminal expertise in order to identify the most effective asset recovery strategy,” said criminal fraud expert Andrew Sackey of Pinsent Masons.
09 Sep 2020