Clause 9

Fraud Bill [Lords] – in a Public Bill Committee at 4:15 pm on 20th June 2006.

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Participating in fraudulent business carried on by sole trader etc.

Photo of David Heath David Heath Shadow Leader of the House of Commons, Shadow Spokesperson (Cabinet Office) 4:30 pm, 20th June 2006

I beg to move amendment No. 14, in clause 9, page 4, line 1, leave out paragraph (b) and insert—

‘(b) for any fraudulent purpose.'.

The amendment is probing the precise terms of the clause. It suggests replacing subsection (2)(b) with a briefer paragraph (b).

The clause is important, and I do not want in any way to reduce its effectiveness in dealing with fraudulent business carried out by a sole trader. However, I do not understand the requirement to show

“intent to defraud creditors of any person or for any other fraudulent purpose.”

The clause does not refer to creditors of the business but to creditors of any person, which I suggest is the universality of people. Most people will be creditors, at least temporarily, of at least one other person and will be debtors to at least one other person. Therefore, I do not understand what is meant.

“Fraudulent purpose” includes creditors of the company, and indeed creditors of any other person or any other trader. Therefore, it is a simplification and a clarification to use the simple phrase “for any fraudulent purpose” rather than the obscure phrase that is in the Bill. Perhaps the Solicitor-General will be able to tell me that I am quite wrong and that there is a specific meaning that necessarily attaches to the phrase and must be in the Bill. I look forward to his response.

Photo of Mike O'Brien Mike O'Brien Solicitor General, Law Officers' Department

The amendment is designed to rationalise the wording of clause 9 by focusing solely on the fraudulent nature of the offender’s conduct. In my view, it is unnecessary.

The new fraudulent trading offence originates with a recommendation in a 2002 Law Commission report on multiple offending. It was based on what the commission concluded was a gap in the law that arises because it is possible to prosecute UK incorporated companies for fraudulent trading but not to pursue other fraudulent traders for that offence.

Clause 9 extends the fraudulent trading offence in section 458 of the Companies Act 1985 by creating a corresponding offence that will apply to all businesses not already covered by the 1985 Act. Logically, the wording of clause 9 must follow that found in section 458—hence the wording in the Bill.

It is important to bear it in mind that clause 9 creates a parallel offence linked to the existing fraudulent trading offence. The rationale and structure of the new offence flow directly from the Companies Act offence, and as such attract the case law that attaches to it. If we were to start changing the legislation, the courts would be busy trying to work out why we changed precise wording in section 458. We must remain consistent. Initiating a change here would have consequences for the interpretation of section 458. Therefore, it is sensible and desirable that the wording of clause 9 should stay as it is.

We used the phrase to ensure that we got the parallel offence right. The new offence applies to businesses that obviously are not companies. The creditors can be creditors of the business, but the business is not of itself a legal person in the sense that companies or individuals are legal persons. A partnership, or another business relationship, may not of itself be a legal person, and the creditors can be creditors of the business, but the business is not a legal person in its own right; rather, the creditors will be creditors of the owners of the business, who may or may not be the defendant.

I hope that that answers the hon. Gentleman’s concerns, and that he can withdraw the amendment.

Photo of David Heath David Heath Shadow Leader of the House of Commons, Shadow Spokesperson (Cabinet Office)

Predictably, it does not. I have always found that consistency in error bedevils our debates; it seems a pointless view that just because a thing was done once before, it needs to be done again, even if it is self-evidently unnecessary or otiose. I cannot conceive of any circumstances in which

“intent to defraud creditors of any person” would not be encompassed in the phrase “for any fraudulent purpose”. It is a tautology, and plainly so. The only part of the Solicitor-General’s argument that commends itself to me is the need to apply consistency between the two company offences. If we introduce no error in law by removing a tautology, it is worth doing. That is my personal opinion, but I give way to the hon. Member for Beaconsfield, who may tell me why I am wrong.

Photo of Dominic Grieve Dominic Grieve Shadow Attorney General

For what it is worth—and the hon. Gentleman knows the number of times that I have argued over drafting—I agree entirely with him. That said, the words are completely innocuous if they remain in the Bill as they are. They are just odd, and no more than that can be said.

Photo of David Heath David Heath Shadow Leader of the House of Commons, Shadow Spokesperson (Cabinet Office)

No more than that might be said, but it undoubtedly will be. The words are odd, but what nags away at the back of my mind is the fact that someone at some stage must have had an intention: someone, in drafting the original Act, must have detected a circumstance in which

“intent to defraud creditors of any person” did not fall within the general compass of a fraudulent purpose. However, we have not heard yet what that distinction might have been.

Photo of Dominic Grieve Dominic Grieve Shadow Attorney General

I think that the hon. Gentleman is over-optimistic in his view that there was necessarily a rationale behind the drafting. I have seen too much such legislation. There was the Public Processions (Northern Ireland) Act 1998, which dealt with the playing of “musical or other instruments”, and nobody was able to explain what an “other instrument” might be. We actually got that deleted as a result of my participation in that debate, but I leave the hon. Gentleman to speculate on what was in the mind of the draftsman in that occasion. I suspect that in this case the legislation, particularly in view of its derivation and origin, belongs to the classic period of belt-and-braces drafting.

Photo of David Heath David Heath Shadow Leader of the House of Commons, Shadow Spokesperson (Cabinet Office)

I say one word to the hon. Gentleman: bagpipes. That is perhaps unfair; I am actually rather  fond of bagpipes, but they are commonly held not to be the most musical of instruments, stirring though they are. He is probably right: it is a belt-and-braces provision. I do not want to make a meal of it, and I do not think that there is any mischief in the words remaining as they are; it just irritates me when drafting is tautologous. When I rule everything, I shall not have laws drafted like that. However, I shall withdraw the amendment.

Photo of Geoffrey Cox Geoffrey Cox Conservative, Torridge and West Devon

I do not know whether this is a speech or an intervention; it was intended to be the first, but it will be very short.

The answer to this very interesting and learned debate may lie in the fact that the section was originally drafted in the Companies Act. For companies, there are multifarious opportunities to have related companies—subsidiaries, parent companies and so on—and one may very well operate a company in order either to defer the debts or to defraud the creditors of a related parent or subsidiary company.

Photo of Geoffrey Cox Geoffrey Cox Conservative, Torridge and West Devon

I hear one company appositely named; I could probably think of quite a few others. The point is that the wording was probably interpolated from the Companies Act to deal with cases where, although the creditors were not of the specific limited company, they were creditors of a related company. The danger was that the defence might argue that the debts related not to the company but to the subsidiary or affiliated company. It might therefore be otiose to insert that when one is charging a sole trader or a partnership.

One suspects that that was the reasoning behind section 458 of the Companies Act 1985, the wording of which is not

“for any other fraudulent purpose”,

as it is in clause 9(2)(b), but rather relates to any fraudulent purpose. The general theory applying to fraudulent trading is that a person can be charged for continuing to trade in order to defraud the creditors of the company, or a related company or person, or for carrying on the company to operate as part of a wider fraud. I suspect that because the wording

“for any other fraudulent purpose” has been translated from companies to sole traders, it might actually not be necessary. The Government might simply have translated wording apposite to limited companies to sole traders.

If that was an intervention, it was very long; if it was a speech, I hope that it was relatively short.

Photo of David Heath David Heath Shadow Leader of the House of Commons, Shadow Spokesperson (Cabinet Office)

I am most grateful for that intervention by the hon. Gentleman, who knows an awful lot more about the matter than I do. His interpretation suggests that the requirement was supposed to be inclusive and to expand the scope of the provision, rather than to be exclusive and to narrow the scope. In that case, it is most likely that the wording has been translated from one enactment to another, simply as a matter of course, without anyone thinking about whether it is necessary.

I repeat what I said earlier: I do not think that any mischief is involved. I want the clause to be able to be  used for lots of actions on the part of traders—the disposal of assets prior to liquidation and matters of that kind. I hope that it will be enforced rigorously for those purposes. I want it to be as wide as possible in its application. Given that retaining the words does not reduce the width of the application but simply states it in two different ways—one partially and the other totally—I can find no fault with it. So, for the second time, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 9 ordered to stand part of the Bill.