Criminal Remedies for Fraudulent Trading in Construction & Building Disputes
A builder has been sentenced by Southwark Crown Court to 4 years in prison for defrauding a client of £700,000 in a home refurbishment project, and disqualified from being a director for 8 years.
This recent case brings to light the remedies victims of fraud may have when dealing with rogue builders. For those who have suffered at the hands of deceptive builders, this conviction and disqualification serve as a reminder of the criminal remedies a victim may have when they have been defrauded. It should be noted that criminal prosecution can be pursued alongside a civil claim for breach of contract or adjudication.
If you have a construction or building dispute, please call us for a Free Consultation on 0207 459 4037 to discuss your case with our expert construction and fraud lawyers.
What is Fraudulent Trading?
Fraudulent trading is a concept defined under section 993 of the Companies Act 2006 which states that:
“If any business of a company is carried on with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose, every person who is knowingly a party to the carrying on of the business in that manner commits an offence.”
It occurs when a business is carried out to defraud creditors or for any other fraudulent purpose. If found guilty, directors could face a prison sentence of up to 10 years and/or a fine.
In the construction industry, fraudulent trading might involve a builder like Jimmy Lee, who knowingly misled clients about the quality of work, costs, or timelines. Specifically, fraudulent trading in this context may include actions like issuing false invoices, misrepresenting the status of the work, and misappropriating company funds.
To establish a case of fraudulent trading, it is necessary to prove that there was an intention to defraud – that the individual or business acted with a deceitful purpose. This is not just about poor business practices or failing to complete a job; it is about deliberately planning to deceive and cause financial loss to customers.
If found guilty of fraudulent trading, the company directors may also face director disqualification. Therefore, it can have severe consequences.
Common Examples of Fraudulent Trading
Fraudulent trading can manifest itself in different forms but within the construction industry it can commonly include:
- Creating fake invoices or documents to misrepresent costs or expenses
- Misusing funds designated for specific project aspects or materials
- Fabricating qualifications or references to secure contracts
- Continuing to trade knowing the company cannot pay its debts
- Deliberately hiding assets or transactions to avoid debt repayment
- Overcharging for work not done or materials not used.
R v Grantham [1984] QB 675
The defendant was a director involved in the management of a financially distressed company. The company continued to trade and incur debts despite being insolvent and having no reasonable prospect of repaying its creditors. The director continued to trade and make promises as to the company’s financial stability while knowing it was insolvent.
The central issue was whether the defendant’s knowledge of the company’s insolvency and continued trading constituted an intent to defraud creditors. To prove a claim for fraudulent trading requires a level of dishonesty and deceptive intent.
The court determined that fraudulent intent involves actual dishonesty and a deceptive intent, beyond merely reckless trading. It was clarified to prove an allegation of fraudulent trading there needs to be a deliberate attempt to avoid debts or liabilities through deceitful means. The director was found to have been guilty in this case.
Builder Guilty of Fraudulent Trading
Hired for his services, Lee, the director of Myint Construction Ltd., was entrusted with a significant residential project in South Kensington for which he was paid £700,000. However, instead of fulfilling the contractual obligations with honesty and integrity, Lee chose a path of deceit.
From the outset, Lee provided the client with fraudulent references, assuring quality and timely completion. As the project commenced, it became apparent that these assurances were baseless. Lee’s operation was fraught with misconduct: issuing false invoices, misrepresenting the progress of work, and misusing funds. Notably, he directed payments intended for subcontractors into his account, spending a substantial portion on personal indulgences like gambling, leaving the property in a state of disrepair and the work incomplete.
The client’s realization of Lee’s fraudulent actions led to a complaint, which was taken up by the Kensington and Chelsea Council’s Trading Standards team. Their investigation uncovered the extent of Lee’s deceit, leading to his prosecution.
Despite pleading not guilty to two counts of fraudulent trading contrary to section 993(1) of the Companies Act 2006, Lee was found guilty after a three-week trial which concluded a few weeks ago.
The court handed down a sentence of 4 years in prison, reflecting the seriousness of his offences. Additionally, he was disqualified from being a company director for 8 years, a standard consequence meant to prevent individuals convicted of serious offences from managing companies and protecting the public from further harm.
It is unclear whether the victims were able to recover any money; it seems unlikely. Myint Construction Limited was dissolved on 29 August 2022 by way of compulsory strike-off at Companies House.
Free Consultation with Expert Construction & Building Dispute Lawyers
The conviction of Jimmy Lee for fraudulent trading has broader implications for the construction industry and those seeking to recover monies from rogue builders. It also highlights, in addition to civil remedies to recover monies, there are also criminal remedies such as:
- Reporting to the Police
- Private Prosecution
- Refer for Investigation by your local Trading Standards office
The sentencing of Jimmy Lee for fraudulent trading in a high-value home refurbishment project serves as a potent reminder of the risks inherent in the construction industry. It serves as a precedent for similar cases, demonstrating that fraudulent behaviour will lead to severe penalties, including imprisonment and director disqualification.
If you have a construction or building dispute, please call us on 0207 459 4037 for a Free Consultation to discuss how our lawyers can assist you.
