Fraudulent scheme by directors - who gets the proceeds?

Fraudulent scheme by directors - who gets the proceeds?

• 30 November 2021
• Accounting
• South African Accounting Academy

This is what the Supreme Court decided in Crown Prosecution Service v Aquila Advisory Ltd [2021] UKSC 49, an English case involving a Jersey company.

Many if not all legal systems will have some permutation of the rule that no person should benefit from his or her own wrongdoing. Deployed as the illegality defence this means, for example, if A sues B to enforce payment in relation to the sale of illegal drugs, it is a defence for B to say that the sale is illegal and therefore it cannot be enforced. English law (as applied to the Aquila case) and Jersey law are no exception and take a similar approach to each other.

So, how could the Court uphold the company’s claim to own the proceeds of the crime? The answer is that (on the facts of the case, at least) it was not the company’s crime. It was the directors’.

Click here to download the full article:

https://lnkd.in/dgsJ39Rh or download the full case file from https://lnkd.in/dUfXvux2

You can also download a South African booklet which provides insight into how creditors may hold errant directors of companies personally liable for the debts of their companies, in terms of our Companies Act:

https://www.werksmans.com/wp-content/uploads/2018/10/Directors-liaibility.pdf

How does this affect you and your clients?

Relevance to Auditors, Independent Reviewers & Accountants:

• The Companies Act is yet another piece of legislation that your clients must comply with, and which you must assess compliance with.  If they don’t comply with the relevant laws and regulations, you have certain reporting obligations in terms of NOCLAR (NOn-Compliance with Laws And Regulations) – this could include reporting to management, qualifying your audit opinion, reporting a Reportable Irregularity, etc.
• As an auditor and independent reviewer, you need to consider and assess fraud risk (in order to comply with International Standards on Auditing and other Assurance Services), and thus you need knowledge of instances that might indicate directors’ involvement in such fraud.

Relevance to Your clients:

• An entity (company or close corporation) has a duty to comply with the Companies Act, and directors have to fulfil their duties accordingly, otherwise they could be held liable.
• Creditors of entities may hold errant directors of companies personally liable for the debts of their companies.

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