Wrongdoing in insolvency: part 1

This series has looked at a series of examples of officeholders' powers. Those inevitably in certain circumstances involve situations which could be described as allegations of wrongdoing against those officers. However there are also certain specific provisions in the Insolvency Act which deal directly with allegations of wrongdoing.

Some of those matters, dealt with in particular in chapter X of the Insolvency Act 1986, deal with matters which impose criminal offences. They are however very different in some respects from ordinary criminal offences. Lord Woolf, who had some involvement in an important case regarding this, was not only Lord Chief Justice of England and Master of the Rolls (and so head of civil litigation), but also the person principally responsible for the new updated civil procedure rules. He pointed out in a case called R v Edwards (2004 1 WLR 2111) that for some considerable time insolvency offences have been regarded as special cases because those who run companies are able to shelter behind the benefit of separate corporate personality (i.e. the company is someone different from themselves, so many circumstances they will not personally be called to account for anything which the company does) and limited liability (i.e. they are not responsible for all or indeed any of the company's debts, save for those specific circumstances in which because of a particular wrongful act someone otherwise not responsible for company debts becomes responsible).

The particular surprising aspect of the various Insolvency Act offences is that in many of them the normal burden of proof is reversed. What that means in practice is that whereas in the normal criminal case the prosecution has to prove every aspect beyond reasonable doubt, in insolvency offences under this chapter in many cases the burden of proof is effectively reversed. The effect of this is that in many aspects of the offences it is provided that if a certain state of affairs exists that the defendant is guilty unless he or she establishes an ability to take advantage of various of the defences established as statutory defences by the provisions. As is usual where the onus of proof is shifted onto the defence, such onus of proof has to be satisfied on a balance of probabilities. That means therefore if certain circumstances are proved to exist, then if a defendant is to avoid conviction he or she has to show certain matters on a balance of probabilities so as to prevent a conviction.

One matter which of course the court had to consider in considering statutory provisions of this type is whether and to what extent the same are acceptable having regard both to the provisions of the common law generally (i.e. those restrictions under English law generally as regards what is regarded as procedure only and substantively fair under English law) and also the provisions of the European Convention for the protection of Human Rights (which amongst other things protects the right to a fair trial). The courts have accepted that in both cases both common law and the said convention allow for the burden of proof to be reversed in appropriate circumstances. What the English courts have decided is that insolvency matters are appropriate circumstances for these purposes.

It should be borne in mind that these appropriate circumstances do not impose an undue burden on the defence. If the defendant is able to put forward grounds to support a statutory defence, the burden of proof shifts back to the prosecution. In consequence the prosecution will need to show that the various parts it relies upon as demonstrating commission of the offence are all proved beyond reasonable doubt.

These general points must be firmly borne in mind when considering the specific offences under the Insolvency Act which will be considered in the articles following this one. all that the court is seeking to do is make sure that a Defendant has to show a basis for a statutory defence. If he or she does, the onus still shifts to the prosecution.