In its report, The Fraud Landscape: Insolvency and the fight against fraud, the trade body argues that although the imposition of a criminal bankruptcy order may prevent government from retrieving funds through a confiscation order, it would not lose money overall  as any realisations would be required to be paid into the Insolvency Service Account and therefore subject to a levy by the Insolvency Service.

Criminal bankruptcy – which would see those convicted of fraud put into bankruptcy where the loss or damage caused to others by their offence exceed £15,000 – was removed from the statute book in 1988.

Under the previous legislation, the Official Receiver acted as trustee of the bankrupt individual’s estate, R3 believes that under a reintroduced criminal bankruptcy regime, it would be more effective for IPs to act as trustees of all criminal bankruptcy cases.

Giles Frampton, president of R3, said: ‘Given government spending and resource cuts, it’s likely there are a number of cases involving fraud that government agencies just can’t afford to pursue. Insolvency practitioners can provide much-needed extra capacity and additional powers to fight back against fraud.

‘IPs already have significant powers to investigate fraud and find redress for victims. At the moment, these powers are only used in a limited number of situations: increasing the opportunities to use IPs’ powers would help bring fraudsters to justice and ensure victims are properly compensated.’

R3 says using IP powers in bankruptcy would be more effective because then all of a fraudster’s assets can be targeted, rather than just the proceeds of crime, and it would be easier to retrieve any overseas assets. IPs’ investigations are carried out under civil litigation, which requires a lower burden of proof than criminal law, which the trade body says it likely to mean faster and less expensive procedures.

Frampton said: ‘IPs are officers of the court and are highly regulated and qualified. Extending the opportunities to use their powers would iron out existing inconsistencies, such as the fact that companies can be made insolvent in the public interest, but individuals can’t.’

R3’s report contains a number of other suggestions to deter fraud and improve the way it is tackled.  They include requiring directors to provide identity documents when registering with Companies House, funded via a fee applied to every Form 288 submitted.

Companies should be required to state on their annual return to Companies House the names of all directors ‘howsoever described’ rather than just the appointed directors, while this form and Form 288 should contain a ‘health warning’ of what may happen to directors who break the terms of their disqualification order and other directors who are complicit in allowing disqualified directors to be involved with the management of a company.

Allowing the Secretary of State to make an individual bankrupt in the public interest would provide another way to increase returns to creditors and fraud victims, while directors of companies wound-up in the public interest should face automatic petitions for their bankruptcy and/or automatic disqualification from acting as a director, R3 says.

Details of the R3 report are here: https://www.r3.org.uk/media/documents/policy/policy_papers/Fraud/R3_Fraud_Landscape_Paper.pdf