The UK Supreme Court has dismissed an attempt by the Crown Prosecution Service (CPS) to confiscate the proceeds of fraud by directors, ruling that the assets in such cases belonged to a company.
The CPS’s argument that a company should be debarred from claiming assets on the grounds that this involved seeking to profit from a crime was rejected.
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 £4.55m, through getting 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 therefore Aquila, under a constructive trust. It argued that Aquila’s 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, but the Supreme Court also dismissed the CPS appeal.
It argued 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”.
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.”
He added: “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.”