Directors of a company are not liable to confiscation orders for offences committed by their company

Posted by John Mitchell on
Directors of a company are not liable to confiscation orders for offences committed by their company.

The Court of Appeal has given a significant judgement in a case in which the Environment Agency was seeking confiscation orders against two directors of a company for the company's wrongdoing.

Under the Proceeds of Crime Act 2002, a court can order a defendant being sentenced for an offence to pay to the state an amount equivalent to the monetary benefit which they have received as a result of their offending.

In this case, there were originally three defendants: the company and its two directors. However, the case against the company was discontinued when it went into liquidation. The charges against all defendants arose out of breaches of an environmental permit. The clean-up costs, paid by the state, were said to be in the region of £1.25m.

The court found that the two directors had a certain amount of benefit from the company's offending and ordered relatively small confiscation orders against them. The Environment Agency argued, however, that the clean-up costs avoided by the company as a result of going into liquidation were a benefit to it and that the amount of that benefit should be attributed to the directors.

The judge found against that argument and the Court of Appeal agreed, observing that this was not a company being run for an unlawful purpose, but a lawful operation which had become unlawful through breaches of conditions of the environmental permit. Although the directors' criminal liability (and in consequence their liability to confiscation orders) depended in part on the company's offending, it depended also upon proof of additional acts or omissions on their part over and above the company's offending (i.e. their consent, connivance or neglect in relation to the company's offending). Consequently, their offending was not the same as the company's. Furthermore, the directors were not the sole shareholders.

The court commented that the prosecution's approach would risk making every company director liable to the confiscation regime whenever a company broke the criminal law. Clearly this decision avoids that risk. It reinforces the principle that company directors are at risk only when a company has been used to conceal the involvement of a director in lawbreaking or to evade a liability which in reality is the director's rather than the company's.

About the Author

John specialises in risk and compliance, advising businesses in those areas of commercial life where the criminal law or penal sanctions are used to regulate business.

John Mitchell
Email John
023 8085 7231

View Profile