Recovery of Losses
Recovery or any losses incurred to fraud can be an effective sanction against the fraudster and need not be as expensive or complicated as it may first appear.
The civil asset recovery process from start to finish is:
- Building the case (evidence gathering)
This stage is about determining whether it is financially worthwhile pursuing the claim and, if it is, against whom you should be pursuing it. It will also help you to build up a body of evidence that can be used in any court proceedings, including (but not limited to):
- where the potential defendant is located
- whether they have substantial assets, and
- in the case of a company or other incorporated entity, the identity of its beneficial owners.
There are a number of ways to obtain information about the potential defendants. For example, company searches at Companies House are useful to work out the corporate structure of a registered company and determine beneficial ownership. Searches of the Land Registry may help to locate assets held in the name of a potential defendant. Such searches can be carried out at minimal cost.
Other more costly fact-finding techniques such as using enquiry agents or obtaining a court orders to require the defendant to disclose information, are only likely to be cost-effective in more significant claims.
The next step is to obtain a freezing order. A freezing order is an order issued by the court to the defendant which prevents them from dealing with their assets in a certain way. Applying to freeze assets should be done quickly in order to prevent the defendant from frustrating your claim by doing something that would put their assets out of reach, for example by transferring assets into the name of a third party or by taking them outside of the jurisdiction.
Seeking such an order is only likely to be appropriate in claims involving fairly substantial sums of money. Freezing orders are usually obtained without notifying the defendant in order to prevent them from putting assets out of reach before proceedings can begin. As a result, there are strict legal requirements on their use.
Such requirements include a duty to make full disclosure of any matters relevant to your application, even those that are harmful to your case. You may also be required to make an undertaking to pay damages to the defendant if it turns out that making an order was not appropriate. At this stage it may also be appropriate to consider whether there are any intermediate insolvency processes available that could assist in obtaining documents and protecting assets, such as provisional liquidation or the appointment of a special manager or receiver.
Because of the legal implications it is probably appropriate to seek professional advice for this stage. A list of solicitors specialising in such cases can be obtained through the Law Society.
The next stage is to issue recovery proceedings against the fraudster.
This is done by delivering a claim form to the appropriate court setting out the necessary details of your claim.
Claims of less than £100,000
You can make claims against 2 or less defendants for amounts less than £100,000 using the money claims online service (MCOL).
For more complex disputes you may need to apply to the court using the relevant claim form available operated through Her Majesty's Court and Tribunal Service. Such claims will usually be dealt with by your local county court.
There are pre-trial procedures involved in both instances which it is important to understand otherwise your claim could be thrown out.
You can make a statutory demand through the courts to ask for payment of a debt from an individual or company. This is usually are more expensive method of recovery.
Anyone who’s owed money (the ‘creditor’) can make a statutory demand. You don’t need a lawyer. More information is available through Her Majesty's Court and Tribunal Service.
If you are successful in making a claim, the court will enter judgment against the wrongdoer, declaring that the fraudster owes a sum of money to the victim. Where the court has granted a freezing order, the victim may look to the assets that were frozen in order to satisfy the debt. If not, and in cases where the wrongdoer fails to make payment promptly, the victim may have the following options available to recover the debt:
- Warrant of control. This allows bailiffs to seize assets belonging to the defendant and sell those assets at auction in order to satisfy the debt. Certain assets may not be seized, such as tools of the trade. If you are owed less than £5,000 you can apply at the County Court, if you are owed more than £5,000 you must apply at the High Court. For High Court cases you are advised to seek specialist legal advice.
- Attachment of earnings. If the defendant is employed you can apply for an attachment of earnings order that directs the employer to deduct a certain amount from the defendant’s pay, and this is given to you to satisfy the debt. However, the payments are likely to be spread out over a long period, so it could be a long time before the debt is fully paid.
- Third-party debt order. This is usually an order given to a bank, and it stops the defendant taking money out of their account. The money you are owed is paid to you from the account.
- Charging order. This prevents the defendant from selling an asset (usually property such as a house or flat) without paying the debt. Care should be taken to ensure that there is sufficient equity or value in the property to be charged before incurring costs.
- Insolvency. There are a number of formal insolvency procedures that can be brought against the defendant and these bring with them a large number of additional powers to trace and recover assets. Advice from a licensed insolvency practitioner should be sought regarding the appropriate procedure.