Personal liability of directors for criminal offences

Personal liability of directors for criminal offences

 

There is an increasing tendency amongst the prosecution authorities to attempt to hold individuals liable for criminal offences committed by the companies which they are at the head of. This has to a large extent been driven by press coverage of directors, often in the financial service industry, who are portrayed as having ‘got away with it’. Unfortunately this does not reflect the position in respect of the vast majority of directors of companies who are honestly running businesses and unwittingly find themselves facing criminal charges.

 

This article will explore the general principles of personal liability of directors for criminal offences and examine what I have found to be the most common examples of such liability coming before the criminal courts.

 

What is the personal criminal liability of directors?

 

It is generally the case that examples of personal criminal liability for directors flow from the corporate criminal liability of the company of which they are a director. Having establishing the corporate criminal liability, the personal liability of the director depends upon their role in the company and the link to the criminal act(s).

Although the personal liability of a director is dependent upon the company having committed a criminal act it can be established even if the company has not been or is not being prosecuted.

The existence of personal criminal liability of directors is intended to ensure the accountability of those in senior positions at companies engaging in criminal conduct.

The role of the director in common examples of personal criminal liability:

 

Directors Liability under the Bribery Act 2010:

The Bribery Act 2010 creates three classes of offence, offences of bribing another person, offences relating to being bribed, and bribery of foreign public officials, which by virtue of s.14 below, can lead to the personal criminal liability of a director:

 

“14 Offences under sections 1, 2 and 6 by bodies corporate etc.

(1)This section applies if an offence under section 1, 2 or 6 is committed by a body corporate or a Scottish partnership.

(2 )If the offence is proved to have been committed with the consent or connivance of—

(a) a senior officer of the body corporate or Scottish partnership, or

(b) a person purporting to act in such a capacity,

the senior officer or person (as well as the body corporate or partnership) is guilty of the offence and liable to be proceeded against and punished accordingly.

(3) But subsection (2) does not apply, in the case of an offence which is committed under section 1, 2 or 6 by virtue of section 12(2) to (4), to a senior officer or person purporting to act in such a capacity unless the senior officer or person has a close connection with the United Kingdom (within the meaning given by section 12(4)).

(4) In this section—

“director”, in relation to a body corporate whose affairs are managed by its members, means a member of the body corporate,

“senior officer” means—

(a)   in relation to a body corporate, a director, manager, secretary or other similar officer of the body corporate, and

 (b) in relation to a Scottish partnership, a partner in the partnership.”

The above legislation means that if it is established that one of the three bribery offences has been committed by a company and the director in question knew about it and gave permission, or willingly ignored it, he or she could find themselves criminally liable.

Director’s liability under the Theft Act 1968:

The offence of false accounting under s.17 of the Theft Act 1968 can by virtue of s.18 of the act below result in personal liability for a director.

“17 False accounting.

(1) Where a person dishonestly, with a view to gain for himself or another or with intent

to cause loss to another,—

(a) destroys, defaces, conceals or falsifies any account or any record or document

made or required for any accounting purpose; or

(b) in furnishing information for any purpose produces or makes use of any

account, or any such record or document as aforesaid, which to his knowledge

is or may be misleading, false or deceptive in a material particular;

he shall, on conviction on indictment, be liable to imprisonment for a term not

exceeding seven years.

 

(2) For purposes of this section a person who makes or concurs in making in an account

or other document an entry which is or may be misleading, false or deceptive in a

material particular, or who omits or concurs in omitting a material particular from an

account or other document, is to be treated as falsifying the account or document.

 

18 Liability of company officers for certain offences by company.

(1) Where an offence committed by a body corporate under section ... 17 of this Act

is proved to have been committed with the consent or connivance of any director, manager, secretary or other similar officer of the body corporate, or any person who

was purporting to act in any such capacity, he as well as the body corporate shall

be guilty of that offence, and shall be liable to be proceeded against and punished

accordingly.

 

(2) Where the affairs of a body corporate are managed by its members, this section shall

apply in relation to the acts and defaults of a member in connection with his functions

of management as if he were a director of the body corporate.”

 

The effect of the above legislation is that where the offence of false accounting is carried out by a company and the relevant director knew about it and gave permission, or willingly ignored it, he or she could find themselves criminally liable.

Director’s liability under the Fraud Act 2006:

By virtue of s.12 of the Fraud Act 2006 below if an offence within the act is committed by a body corporate, personal criminal liability of the director can arise:

“12 Liability of company officers for offences by company

(1) Subsection (2) applies if an offence under this Act is committed by a body corporate.

(2) If the offence is proved to have been committed with the consent or connivance of—

(a) a director, manager, secretary or other similar officer of the body corporate, or

(b) a person who was purporting to act in any such capacity,

he (as well as the body corporate) is guilty of the offence and liable to be proceeded

against and punished accordingly.

(3) If the affairs of a body corporate are managed by its members, subsection (2) applies

in relation to the acts and defaults of a member in connection with his functions of

management as if he were a director of the body corporate.”

 

As a result of s.12 of the Fraud Act 2006 if a company commits any one of the variety of fraudulent offences under the act a director of that company may find themselves personally liable if they knew about it and gave permission, or willingly ignored it.

Consent or Connivance:

 

In order for personal criminal liability to be established against a director in all three of the examples set out above it must be shown that there was either consent or connivance on the part of the director in relation to the commission of the offence by the company. 

In order for a director to consent there must be knowledge and agreement to the facts which amount to the offence (Attorney General’s Reference (No 1 of 1995). The director need not realise that the facts known and agreed to amount to a criminal offence in order to have consented.

Connivance amounts to the knowing shutting of the directors eyes to the conduct in question. In looking the other way the director, in accordance with Huckerby v Elliot [1970], is “not actively encouraging what happens but letting it continue and saying nothing about it”.

 

Director’s liability under the Health and Safety at Work etc. Act 1974

Under s.37 of the Health and Safety at Work etc. Act 1974 a director can be liable for the wide variety of offences covered by the act when it is committed by a body corporate and the director has consented, connived, or been neglectful in relation to the criminal act.

 

“37 Offences by bodies corporate.

(1)  Where an offence under any of the relevant statutory provisions committed by a body corporate is proved to have been committed with the consent or connivance of, or to have been attributable to any neglect on the part of, any director, manager, secretary or other similar officer of the body corporate or a person who was purporting to act in any such capacity, he as well as the body corporate shall be guilty of that offence and shall be liable to be proceeded against and punished accordingly.

(2) Where the affairs of a body corporate are managed by its members, the preceding subsection shall apply in relation to the acts and defaults of a member in connection with his functions of management as if he were a director of the body corporate.”

 

Neglect:

Like the bribery, theft, and fraud acts the Health and Safety at Work etc. Act 1974 includes the concepts of consent and connivance, but unlike the aforementioned acts it includes the possibility of personal criminal liability for directors by means of neglect.

Neglect can include a situation where a director is unaware of the conduct in question but by reason of their position in the company they should have made the necessary enquiries in order to find out about it. A director can therefore find themselves criminally liable under health and safety legislation (amongst other areas such as the Companies Act 2006, the Private Security Industry Act 2001 and the Trade Descriptions Act 1968) when they have ‘taken their eye off the ball’ in relation to their responsibilities. It is of note that the inclusion of neglect widens the scope of possible criminal conduct of a director despite the fact that custodial sentences are available for offences under the Health and Safety at Work etc. Act 1974. 

 

The consequences of personal criminal liability for directors

The criminal liability of the director mirrors that of the company. When a director is found to be personally criminally liable for the offence of the company they are not liable for a different offence but rather the same one as the company in a similar fashion to vicarious liability.

 

Conclusion:

There are a variety of different offences for which directors can be found to be personally liable, too many to cover in this short article. Whether it be by means of consent, connivance, or neglect the consequences for directors can be severe with custodial sentences are often a possibility.

If you find yourself in a situation of legal difficulty involving criminal liability as a director it is essential that you obtain expert legal advice as soon as possible. Quentin Hunt has an excellent record of defending in serious and complex criminal cases. Please contact Quentin for a free informal no obligation conversation about your case. 

POSTED: Tuesday, October 6, 2015

Categories:  CRIME,   FRAUD,   HEALTH / SAFETY