CIVIL FRAUD AND ASSET RECOVERY AN INTRODUCTION TO UK LEGISLATION | OCTOBER 2020 | SECOND EDITION Civil proceedings can sometimes be used to recover some or all of the losses incurred as a result of fraud. This guide explains how fraud is usually dealt with under the civil law in England and Wales.

WHAT IS CIVIL FRAUD? the defendant is ‘good for the money’. Claims of less than £100,000 are This will also help to decide whether dealt with by the local County Court. Civil fraud is a civil action that can be it is financially worthwhile pursuing Higher-value claims may be dealt with brought by a defrauded person (the the claim and, if it is, against whom it by the High Court or one of the various ‘claimant’) to recover losses caused by should be pursued. regional district High Court registries. the fraudulent conduct of others. The emphasis is on the claimant obtaining Evidence about the claim may include: Claims will be allocated to one of three compensation – a payment of money tracks: small claims (£10,000 or less), • communications between the or transfer of assets (called ‘damages’) fast-track (£10,000 to £25,000), or defendant and the claimant before – from the fraudster (the ‘defendant’) multi-track (above £25,000 or complex). loss of money (for example emails or or someone else who participated in text messages); Sometimes a claimant can represent the fraud. themselves in court by acting as a • contracts, presentations or other Commonly, this will be for ‘litigant in person’. The Legal Choices ‘official’ documents such as share breach of contract or fraudulent website has more information on certificates provided to a claimant by misrepresentation. 1 this. More complex cases may require the defendant; and a team of professionals including Civil fraud claims only need to be • contemporaneous notes of solicitors, forensic accountants and proven ‘on the balance of probabilities’, conversations or meetings. fraud investigators. Professional which is a lower threshold than that advice should be sought to maximise required in criminal cases. However, if Evidence about assets may include: the prospects of successful recovery the correct procedures are followed, • where the potential defendant is actions. evidence obtained during a civil located; investigation can sometimes be used TYPES OF CLAIM in subsequent or parallel criminal • whether they have (or had) investigations. substantial assets or have transferred Several different types of claim can them to another party; be brought, which usually involve an WHO CAN BRING CIVIL element of breach of trust, such as a • where those assets are located; and false statement, a misrepresentation, PROCEEDINGS? or withholding the truth where there • in the case of a company or other is a duty to disclose the truth, and Civil proceedings can be brought incorporated entity, the identity of its which results in reliance and loss to by individuals, companies and other beneficial owners or those who are the victim. organisations. really managing and running the day- Sometimes claimants will band to-day affairs of the company (which Some common claims are set out together when their allegations may not necessarily be the directors below. of fraud are against the same listed at Companies House). Claim against the defendant defendant(s) and have similar facts, to Low-value frauds, as well as crimes collectively bring what is known as a committed by ‘men of straw’ (that is, A claim may be as simple as a group or multi-party action. a person of no financial means who request for the repayment or return is unlikely to be able to meet a claim of monies paid on the basis of COSTS made against them), are seldom misrepresentation and/or obtained by Anyone bringing civil proceedings thought to be worth the cost and unjust enrichment. In a claim of deceit will usually need to pay their own effort of pursuit through the civil (misrepresentation) the following legal fees, investigation costs and courts. The insolvency registers for elements need to be proven: out-of-pocket expenses (called England and Wales, Scotland and • the defendant made a representation ‘disbursements’). Other funding Northern Ireland can be a good which was false, knowing it to be false; options are sometimes available, such starting point to check on the financial as litigation funding and insurance. status of a proposed defendant. • the defendant intended that the representation would induce the Once evidence has been collected a claimant to act; and MAKING A CLAIM claim form can be delivered to the One of the first steps to making a appropriate court, usually with a • the claimant suffered a loss. claim is to collect evidence that can be document called the Particulars of used in any court proceedings to show Claim which sets out the allegations, that the claimant has been defrauded. why money should be repaid, and Part of this process will often include how much. investigatory steps to assess whether Claim against a party in possession, Recoveries are divided between Attachment of earnings creditors in order of priority. Secured use or control of misappropriated If the defendant is employed it may assets creditors (such as banks) usually have first claim on any assets before be possible to apply for an order that The suspected perpetrator may unsecured creditors. directs their employer to deduct a have attempted to cover up their certain amount from their wages which wrongdoing by placing legal ownership Advice from an insolvency solicitor is then paid to the claimant to satisfy the of the assets into the name of a or licensed insolvency practitioner debt. These payments are usually spread close and trusted individual or into a (usually an accountant) should be out so it can take time before the debt is company or trust. This may make it sought regarding the appropriate fully paid. necessary to commence proceedings procedure. Charging order against a party other than the suspected perpetrator. OTHER TOOLS THAT CAN This order stops the defendant from BE USED selling an asset (usually property such Claim against a party with a duty as a house or flat) without paying the of care Disclosure orders debt. Care should be taken to ensure Sometimes it is possible for a party Sometimes a claimant needs more that there is sufficient equity or value in other than the suspected perpetrator information to help identify who the the property before incurring costs. of a fraud to be held responsible for it. defendant should be or to confirm that Third-party debt order For example: a fraud has occurred when the claimant has grounds for suspicion. Disclosure This order is given to a bank to prevent • a director’s personal estate in an orders, such as a Norwich Pharmacal or the defendant taking money out of insolvency of a company where Bankers Book Evidence Act Order, can their account. The money owed to there is actual or suspected director assist in this regard. the claimant is then paid out from misfeasance which has resulted in a that account. breach of duty to that company; Freezing orders Warrant of control • a professional adviser (such as A freezing order freezes a defendant’s a solicitor, licensed conveyancer assets so that nothing can be done This allows bailiffs (County Court) or or banker) who has breached with them until the court process has enforcement officers (High Court) to their professional or other duties finished. Freezing orders are usually seize assets belonging to the defendant by handling the proceeds of only appropriate in claims involving and sell them at auction to satisfy the fraudulent activity; fairly large sums of money and are debt. Certain assets may not be seized, often served on the asset holder, such as tools of the trade. • an adviser or fellow company director such as a bank. There are strict legal who may have owed a fiduciary duty requirements governing their use. FURTHER INFORMATION to the claimant; or The Insolvency Service to find a • a director whose company has been Search orders licensed insolvency practitioner. engaged in fraudulent or wrongful A search order may be obtained to trading. allow the claimant’s representative The Law Society to find a solicitor. The example in the final bullet above, to search the defendant’s home or Money Claim for information on the is typified by the ‘phoenix company’ in business to secure evidence relating small claims process. which a director places one company to the fraud or which may lead to the into liquidation to avoid making location of assets. Also see the resources section of our website. payments to creditors and then Other injunctions continues to operate substantially Notes the same business using a newly Injunctions can be obtained to help 1 incorporated company to which the stop any transactions planned by the Also known as the tort of deceit. assets of the former company have defendant from happening. been transferred at an undervalue. This deprives genuine creditors of the first ENFORCING A CLAIM This helpsheet was kindly reviewed company, leaving them out of pocket and updated by Arun Chauhan at Tenet If a case succeeds at trial the court for the goods or services they have Compliance & Litigation and Frances will enter into a judgment against supplied or paid for but not received. Coulson at Moon Beever LLP. the wrongdoer, declaring that the defendant owes a sum of money to the INSOLVENCY PROCEEDINGS claimant. In certain circumstances, it may be Where the court has granted a freezing possible to commence bankruptcy order, the victim may look to the frozen (against an individual) or insolvency assets to satisfy the debt and seek a (against a company) proceedings post-judgment freezing order until they to recover losses, but only if the are secured. If not – and in cases where suspected perpetrator still has the wrongdoer fails to make prompt sufficient money or assets to pay payment – the victim may have the any claim. following options available to recover the debt.

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