Many of the fraud disputes we are used to dealing with here at Tenet arise in small or mid-sized businesses where directors and shareholders overlap. In this article we examine, inter alia, why fraud risks are higher in closely held companies, and what options are available to business partners or equity investors when fraud is discovered.
Tenet recently acted for an individual in a dispute where an enforcement order was sought for delivery up of an item. The parties had previously been involved in a series of contentious disputes which had escalated.
After judgment was ordered for delivery up of an item, at an agreed valuation, the impossibility of compliance saw our client served with a claim for aggravated damages and for a monetary judgment in lieu of the item at a valuation higher than previously ordered. The claim sought to renegotiate the valuation and refused to consider our client’s attempts at resolution. For example, our client had sought to rectify the non-compliance by transferring payment in the sum of the agreed valuation to the opponent, in lieu of the physical item.
We worked with our client to procure a resolution of the matter at the hearing. Our approach included preparing a witness statement indicating the opponent’s refusal to seek alternatives to litigation, the serious deficiencies in their case and attacking the basis for seeking aggravated damages. We obtained expert evidence on the valuation of the item and explained the non-compliance. We were ultimately able to resolve the claim for significantly less than what the opponent was seeking. By arguing that the valuation had been agreed and monetary compensation provided for in the judgment, we persuaded the court to maintain its previous decision to order payment of a sum in lieu of the delivery. Furthermore, there were no damages ordered. The client was delighted with the outcome.
Tenet acted for three shareholders who had invested significant sums in a global business coaching company based on representations made to them by the CEO/Founder and Head of Investor Relations that turned out to be false.
Following a successful judgment for fraudulent misrepresentation in the sum of circa £1.3m plus costs, the defendants declared themselves bankrupt in a bid to avoid paying the judgment debt. However, the defendants underestimated the options available to our clients given the judgment which was founded in fraud survived their bankruptcy.
For our clients this was about righting a wrong as is so often the case in fraud matters. Having helped our clients obtain judgment at trial, we were determined to help them enforce that judgment in order to recoup their losses. Our strategy incorporated enforcement against assets falling outside of the bankruptcy regime including an application for delegation of rights in respect of one of the defendants’ pension funds. In relation to the main perpetrator, we assisted our clients to purchase the Trustee in Bankruptcy’s interest in his family home which was held across three separate titles and involved a trust based in Guernsey. Our clients sought an order for sale and a declaration that at least 50% of the beneficial interest in the property belonged to the defendant. The matter ultimately settled favorably for our clients with voluntary payment secured avoiding yet further court intervention in the matter.
Fraud Prevention Isn’t Optional. It’s the Law. The Economic Crime and Corporate Transparency Act 2023 (the “Act”) “failure to prevent fraud” corporate criminal offence comes into force from 1st September 2025. It has been introduced as part of the Government’s campaign to reduce fraud, which now accounts for 41% of all crime in the UK. In this article we identify the key components of the offence and highlights the impact its introduction will have on businesses.
The Money Laundering Regulations 2017 (‘the Regulations’) set out what regulated firms must do in order to comply with their anti-money laundering (“AML”) obligations. These include requirements in relation to client due diligence; risk assessments; policies, controls and procedures; and staff training. It also includes the requirement to have a Money Laundering Reporting Officer and, if appropriate, a Money Laundering Compliance Officer; with the identity of the post-holders being notified to the relevant regulator within 14 days.
All financial investments generally carry an inherent risk. When investing in shares, we all know that the value of those shares can go down as well as up, businesses can flounder and markets can fall. However, what if you’ve done your homework and been given assurances about your investment which turn out to be completely untrue? Did you rely on those assurances when making your decision to invest? Have you suffered substantial losses and feel that you have been misled before you decided to invest. What are your options in those circumstances…?
Who?
We successfully defended a security for costs application brought against our client, an individual who had brought a claim to establish ownership of a horse.
What?
If there is any doubt over a party’s ability to pay any adverse costs order, the court may make an order for security for costs against them resulting in some form of security being required (often a payment into court). In this case, the Defendants applied for an order for security for costs on the basis that our client was residing in Switzerland, a non-Hague Convention State.
The Defendants relied upon the fact that, at an earlier hearing, our client had been ordered to provide to the Defendants, an equine passport. The client had posted this to the Defendants, from Switzerland. But was this really evidence of our client being “settled” in that country?
Our client’s position was that he resides in the UK, and he produced a string of documents linking him to residency at a UK address. However, the Defendants sought to counter this with evidence that our client did not own the UK property (a family member did) and was not on the electoral roll at the UK address. We argued that neither of these points determined residency in the UK.
The court agreed that the Defendants had not evidenced residence outside of the UK and therefore, the application failed at the first hurdle.
Why?
The court went on to agree with all alternative arguments we advanced for our client, and this was due to the unique circumstances from which the claim arose. Our client’s case was that he had bought the horse and took possession of it. The Defendants disputed our client’s ownership of the horse and some 2 years later they attended his premises in the middle of the night and took back the horse without agreement.
We said that the court ought not be impressed with the Defendants’ conduct in taking the law into their own hands. The better approach, we argued, would have been for them to commence court proceedings, as the Claimant, for delivery up of the horse. Had they done so, they would have been the Claimant (as opposed to the Defendant) in proceedings and as such would never have had a right to seek security from our client.
The court agreed with all arguments advanced on behalf of our client and the application was dismissed with an order that the Defendants pay our client’s costs of the application. It does not always follow, but success in interim applications can have a number of positive implications for the wider litigation. In this case, our client was saved from making a payment on account of costs, was awarded his costs of the application and is in a good position in the wider claim – a win win!
Who?
The client was a legal professional and the only “de jure” director (being a director properly appointed to the board and registered with Companies House) of a company who discovered that his signature appeared on multiple personal guarantees (“PGs”) arising from finance the company had procured.
What?
It was our client’s position that the PG’s were signed without his full knowledge and consent, or that they may have been placed before him for signature in circumstances where the nature of the document had been misrepresented to him and/or the PG had been procured by undue influence.
At the final hearing of the application to set aside the statutory demand, the opponent sought to rely on the recent case of Kerkar v Investment Opportunities IV PTE Ltd [2021]. In this case, Mr Kerkar had signed a PG in relation to one of his companies. As with our case, Mr Kerkar made allegations of misrepresentation in respect of the PG and also allegations of fraud. In Kerkar, the Court refused to set aside the statutory demand finding that there was an inadequate particularisation and lack of evidence underpinning the allegations. The Court found it “inherently implausible” that a man of Mr Kerkar’s extensive business experience would have relied on representations made to him by others in respect of the legal consequences of signing a PG.
However, we had been able to produce over 600 pages of documents and evidence to assist the Court in drawing a clear distinction between the facts of our client’s case and the facts of Kerkar. Despite our client being an intelligent individual and a member of the legal profession, the Court did not find this was the same as him being an experienced businessman and the Court accepted that misrepresentations may have been made, which would be a matter to be determined at trial.
Why?
The statutory demand was set aside. Because of the conduct of the opponent in refusing to agree to pre-application requests to withdraw the demand, the court made a significant 5-figure adverse costs award against the creditor, which in fact exceeded the debt the creditor said was due .
This is a stark reminder of the importance for parties to ensure they are embarking on the correct procedure for debt recovery. In particular, where a creditor is notified of significant grounds of dispute, the service of a statutory demand is open to challenge.
[1] It should be noted that setting aside the statutory demand is not the same as extinguishing liability of the underlying claim. Whether or not the matter will be pursued as a part 7 claim, remains to be seen.
This article explores the different types of misrepresentation and at what stage a misrepresentation will cross the line to being fraudulent as opposed to an innocent or negligent misrepresentation.
This article will look at the recent case of CCP Graduate School Ltd v National Westminster Bank PLC & Anor [2024] EWHC and the questions that arise from that judgment including whether an obligation exists on banks to pursue the recovery of funds following an authorised push payment fraud i.e. the “retrieval duty”.