Category: Insights

Expert opinion and insight from our experienced consultants.

Duties of care owed by trustees: A brief guide

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Here, Leanne Millhouse and Audrey Serrano of law firm Kennedys provide a brief guide to the duties of care owed by trustees.

The duties of skill and care arise both under common law (judge made law) and under statute. Trustees also owe fiduciary duties.

Common law duty of care

A common law duty of care has been developed over many centuries following decisions made by judges in cases involving trustees.

To comply with the common law duty, a trustee must take all those precautions that an ordinary prudent person of business would take in managing similar affairs of their own. The test is objective, which means it is the standard of a prudent business person, not the standard of the trustee in question. A higher duty will apply to a professional trustee, whose standard would be that of a professional trustee.

The common law duty applies in all cases involving trustees, unless there is an appropriately worded exclusion clause in any trust document, which may limit this liability.

Statutory duty of care

The statutory duty of care is imposed by Section 1(1) of Trustee Act 2000, and only applies in certain cases after 1st February 2001. The duty requires a trustee to exercise such skill and care as is reasonable in all the circumstances, having regard to:

  • Any special knowledge or experience that they have, or hold themselves out as having.
  • Any special knowledge or experience that it is reasonable to expect of a person acting as trustee in the course of a business or profession.

The statutory duty of care may be limited or specifically excluded by the trust document. As stated, where the duty does not universally apply, it is limited to the following circumstances:

  • Any exercise of powers of investment including the acquisition of land and exercising any powers in relation to such land.
  • Insuring property or any exercise of power to insure.
  • Entering into arrangements with nominees, custodians and agents and reviewing such arrangements.
  • Dealing with reversionary interests and valuing trust assets and any corresponding powers.
  • Exercising powers of compromise and any corresponding powers.

What happens if a trustee breaches the duty of care?

If a trustee has fallen short of the required standard when carrying out the duties, the trustee is in breach of trust. The trustee may also have a personal liability to reconstitute the trust fund by making good any damage caused where possible, or by paying compensation for all losses that would not have occurred “but for” the breach.

How can a trustee limit their liability for breach of trust?

There are various steps a trustee can take in an attempt to mitigate a potential claim, namely:

1. Always seek professional assistance when faced with any onerous, unusual or difficult decisions concerning the carrying out of your functions.

2. Ensure that you maintain appropriate insurance cover to provide for legal fees and damages in the event of any claim. A specialist broker will be able to assist you.

3. Familiarise yourself with the trust deed and its requirements.

4. Consider an exclusion clause, limiting or excluding your duty of care in certain cases or to certain classes of beneficiaries.

4.1. A properly worded clause in a trust document may exclude or limit the trustee’s liability under some statutory or common-law duties of care. It will not, however, prevent beneficiaries from restraining the trustees from carrying out certain acts, or from removing trustees. Nor will the exclusion clause limit liability for fraud, or exclude the trustee’s core duty, which is to perform the duty honestly and in good faith for the benefit of the beneficiaries.

We recommend that a trustee always seeks legal advice on any issues they are not familiar with, or where there is discord between the beneficiaries as a whole or a class of beneficiaries.

First published on the Kennedys website.

Advice and support from ESA Risk

For advice and support in areas from risk management and security to corporate investigations and digital forensics, contact us at advice@esarisk.com, on +44 (0)343 515 8686 or via our contact form.

Fiduciary duties owed by trustees: An introduction

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Many trustees appointed under wills by the testator are lay trustees, not fully appreciating what the role involves. Here, Leanne Millhouse and Audrey Serrano of law firm Kennedys provide an introduction to the fiduciary duties of a trustee.

What is a fiduciary duty?

The relationship between trustees and beneficiaries is known as a fiduciary relationship, and has at its core an obligation of loyalty, trust and confidence, with no conflict and no profit rules on the part of the trustee. There is also a general duty of good faith (to act openly and honestly).

The beneficiary is entitled to the trustee’s single-minded loyalty. The overarching theme is that trustees are not permitted to use their positions for their own private advantage and are required to act unselfishly in what they perceive to be the best interests of the beneficiaries.

The obligation to exercise reasonable care and skill, whether under the common law or statute, is not a fiduciary duty, but a separate and additional duty for the trustees.

The fiduciary duty continues for as long as the relationship continues. So, as long as the trustee remains a trustee, they owe the duties.

How does one comply with the fiduciary duties?

Trustees must ensure they abide with the following basic rules:

  • Only act in the interests of the beneficiaries as a whole.
  • To not put themselves in a position where their personal interest conflicts, or where there is a real possibility of conflict, with their fiduciary duties, or the beneficiaries interests.
  • To not adversely affect the beneficiaries’ interests.
  • To subordinate any personal interests they have to that of the beneficiaries.
  • To not favour one beneficiary (or class of beneficiaries) over another.
  • To not, without authority, make a profit from the use (whether directly or indirectly) of property subject to the trust. If they do, they must account for that profit to the trust. The beneficiary does not have to show any bad faith on the part of the trustee.
  • To not make a profit from their role (as distinct from authorised remuneration under the trust document or as agreed with the beneficiaries).

Can trustees be paid for their role?

If trustees are seeking remuneration for their work, they must ensure that this falls within the remit of the trust instrument, or is agreed by the beneficiaries.

How can I exclude or limit my fiduciary duty?

The following are commonly used to in an attempt to mitigate exposure to personal liability for breach of duty:

  • The use of exclusion clauses and duty-defining provisions: a well drafted clause should set out the scope and content of the fiduciary duty, and may seek to limit or exclude this duty. The court may uphold such a clause if it is clear, unambiguous and reasonable, but each case is very much determined on its own facts
  • Disclosure and consent: the beneficiaries may, up to a point, agree to relax, or forego, the requirement to fulfil fiduciary duties. If a beneficiary is to do this, their consent must be fully informed. The burden of proof is on the trustee
  • The court can approve a transaction that would otherwise have been a breach of fiduciary duty.

We also recommend that trustees enquire about appropriate insurance cover in the event of any claim. A specialist broker will be able to assist you.

What happens if one is in breach of their fiduciary duties?

Trustees can leave themselves open to the following actions:

  • A claim for damages.
  • Order to account for any profits the trustee has made.
  • Rescission – The decision made by the trustee may be overturned and set aside.
  • Injunction to either prevent the trustee from taking a course of action, or requiring the trustee to take a course of action.
  • Removal as a trustee.

A complex area of law

Fiduciary duties are a complex area of law, with several leading cases setting out the scope of the duties. However, each case is very much determined on its own facts.

We recommend that a trustee always seeks legal advice on any issues they are not familiar with, or where there is discord between the beneficiaries as a whole or a class of beneficiaries.

First published on the Kennedys website.

Advice and support from ESA Risk

For advice and support in areas from risk management and security to corporate investigations and digital forensics, contact us at advice@esarisk.com, on +44 (0)343 515 8686 or via our contact form.

What happens during an Insolvency Service investigation?

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If there are findings of misconduct, this will be taken up by the Insolvency Service to seek action against the company director.

The insolvency practitioner appointed to liquidate the business will lead the investigation, or an Official Receiver, which is a liquidator appointed by the Insolvency Service when a business is forced to liquidate as a result of a winding up petition, also known as compulsory liquidation.

The investigation sets out to uncover wrongdoing that spans back over the years with a view to protecting the best interests of stakeholders, including company creditors. Guest author Sharon McDougall of Scotland Debt Solutions, a Scottish debt advice specialist, shares what happens during a company investigation during liquidation or administration.

What events take place during a company investigation?

The office-holder – either the insolvency practitioner or Official Receiver – will set out to establish the series of events that unfolded in the run-up to the decline of the business. They will seek to interview the company director(s) in person or issue a written questionnaire to capture their view on the matter and ask what action was taken to remedy the problems that inflicted the business.

They may also turn to company stakeholders to corroborate the director’s claims.

The company records will be investigated, in addition to the financial trail, such as transactions to back up the claims put forward by the director.

Once a report has been compiled, any findings of misconduct will be reported to the Insolvency Service. The consequences of unfit conduct can lead to director disqualification which means that the director can be disqualified from acting as a company director for up to fifteen years. If they break the terms of the disqualification, they could be fined or imprisoned for up to two years.

‘Unfit conduct’ includes to:

  • allow a company to continue trading when it can’t pay its debts
  • fail to keep proper company accounting records
  • fail to send accounts and returns to Companies House
  • fail to pay tax owed by the company
  • use company money or assets for personal benefit.

The Insolvency Service will confirm in writing why they believe that the individual is unfit to be a director and whether they intend to proceed with the disqualification process or see the individual in court if they wish to defend the case.

What is investigated during the process?

The investigators will look for evidence of director misconduct which may involve any of the following:

  • Transactions at undervalue – Company assets are sold for lower than their market value.
  • Preferential payments – Selected creditors are paid due to preference, rather than according to the order prescribed by the Insolvency Act 1986.
  • Fraudulent trading – When the director acts in a fraudulent manner, such as intentionally accepting payments when the business is in no position to continue.
  • Wrongful trading – When the director continues to operate the business while it is knowingly insolvent as this worsens the financial position of company creditors.

An Insolvency Service investigation is serious because if company directors are found guilty of wrongdoing, the consequences can be detrimental. Along with director disqualification, the director could be forced to compensate the company which will then be fed to creditors, not to mention the reputational damage.

Insolvency and debt investigations

Seeing the whole picture in insolvency and debt cases is key to maximising returns to creditors. For more information on how ESA Risk can help to identify hidden assets or locate targets who have gone to ground, contact Mike Wright, Investigations and Risk Management Consultant, at mike.wright@esarisk.com, on +44 (0)343 515 8686 or via our contact form.

You can also learn more from our Insolvency & Debt Investigations brochure:

Download your copy

 

This article was written by guest author Sharon McDougall of Scotland Debt Solutions.

The state of director disqualifications and misconduct

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Guest author Paul Williamson of Selling My Business – a renowned business sale specialist – explains why, when you’re caught between right and wrong, it’s always best to return to the question: what’s the best decision for creditors?

What is director disqualification?

A director that is disqualified is effectively banned from acting as a company director for up to fifteen years. A disqualification order is issued by the court, and anyone can report a company director for unfit conduct and failing to fulfil their legal responsibilities. Director disqualification aims to deter company directors from taking advantage of the benefits that limited liability presents.

When is a director deemed unfit?

A director is deemed unfit if they trade while insolvent, intentionally defraud company creditors or commit any of the following offences:

  • Continue trading while aware that the business is insolvent and, therefore, unable to pay its debts.
  • Fail to pay taxes, prepare accounting records, and submit accounts and records to Companies House as is their directorial duty.
  • Use company funds for a personal benefit.
  • Commit fraudulent behaviour that deprives creditors of assets.

How can a director be disqualified?

The Company Directors Disqualification Act 1986 establishes the circumstances under which a company director can be banned from performing their duties. This may likely be the result of an Insolvency Service investigation that is conducted when a company goes into liquidation or administration. If the business does not undergo an insolvency procedure, the director can still be reported as unfit to the Insolvency Service.

If a company director wishes to voluntarily disqualify themselves as a director to avoid court proceedings and to put the matter behind them, they may wish to give a disqualification undertaking. The Disqualification Undertaking procedure was introduced as a result of the Insolvency Act 2000 to give company directors the ability to issue voluntary disqualification and swiftly end enquiries, subject to agreement from the Insolvency Service.

What are the implications of director disqualification?

If you’re disqualified as a company director, you are unable to act as the director of a company or participate in the forming, marketing, or operating of a company without permission from the court.

If the director fails to comply, here are the repercussions:

  • Disqualified director may be fined.
  • Disqualified director may be imprisoned for up to two years.
  • Disqualified director may be held personally liable for company debts.

The consequences of director disqualification are serious as they can stop you from operating a company or acting in any capacity to manage a business.

What is the current state of director disqualifications?

According to the Insolvency Service, during 2021/22, 802 directors were disqualified under the Company Directors Disqualification Act 1986 as a result of their work. The number of director disqualifications in 2021/22 and 2020/21 was lower than in financial years between 2013/14 and 2019/20 – before the coronavirus pandemic. This coincided with a historically low number of company insolvencies as a result of the pandemic, during which there was a moratorium on winding up petitions.

The increase in company insolvencies has not yet resulted in a surge in director disqualifications due to the time gap between insolvencies and investigation proceedings. The average length of director disqualifications has been between five years and five months, and six years in each of the past ten financial years.

For director disqualification outcomes in 2021/22, the most common allegation made was ‘Unfair treatment of the Crown’ (meaning HMRC), which was an allegation in 297 cases, accounting for 37% of all allegations. The second most common was the 141 allegations (17%) relating to Covid-19 financial support scheme abuse, such as the Bounce Back Loan Scheme. Covid-19 support schemes were provided to help deliver an economic benefit, although a small number of company directors used funds for their personal benefit.

If as a director you are suspected of misconduct, you could be investigated by the Insolvency Service which is part and parcel of entering company administration or liquidation. If deemed unfit as a director, you’re no longer able to run a company which can be detrimental if you have career plans that involve managing your own business.

Insolvency and debt investigations

Seeing the whole picture in insolvency and debt cases is key to maximising returns to creditors. For more information on how ESA Risk can help to identify hidden assets or locate targets who have gone to ground, contact Mike Wright, Investigations and Risk Management Consultant, at mike.wright@esarisk.com, on +44 (0)343 515 8686 or via our contact form.

You can also learn more from our Insolvency & Debt Investigations brochure:

 

Download your copy

 

This article was written by guest author Paul Williamson of Selling My Business.

How to track the financial health rating of suppliers

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Although, what about external risks posed to the business that are out of your control?

The financial health of your supply chain is interlinked with the health of your own business, as if you’re highly dependent on a small number of contracts and any of these businesses run into financial difficulty, your business could be at risk. Therefore, it’s crucial to spread the risk, rather than concentrate the risk on a small number of clients.

Guest author Karl Hodson of UK Business Finance, a commercial finance specialist, runs through how to track the financial health of businesses in your supply chain through a combination of methods, including assessing data available in the public domain, analysing behaviour, and using specialist software.

Credit risk management software

Specialist software designed for credit risk managers supplies data on thousands of UK businesses. From financial health ratings, red flags, and detailed analysis of risk levels, it’s worth investing in credit risk intelligence software to mitigate risk and protect your business.

Red Flag Alert is an example of industry-standard credit risk software that provides key financial indicators to forecast potential insolvency. You can connect real-time alerts straight to your inbox so you can be notified of any changes to ratings.

Companies House

Companies House is a public register which means that the information is publicly available. It’s the central database that houses information on all UK companies, most information is free, such as company information, details of active officers, previous company names and insolvency information.

If there’s an incoherent pattern of events, such as a wave of officer resignations and overdue documentation, this may raise a red flag. The Companies House profile will also show the company status, including whether there’s an active proposal to strike off which means that the company is set to close. If the business is due to strike off, raise any claims that you may have with the liquidator.

The Gazette

The Gazette is the UK’s official public record that holds information on companies, including insolvency notices. It provides a complete notice timeline, from the date the petition to wind up the company was issued and the winding up order was granted. You can track businesses in your supply chain to check that they’re not exposed to any legal action from creditors, such as a winding up petition. Keep a close eye on the businesses in your supply chain so you can track any potential insolvencies.

Creditors commonly issue a winding up petition as a final resort if they believe that the company is out of cash. If this is the case, you’ll want to reach out to the liquidator and submit any claims.

Behaviours

If there’s a change in behaviour, such as inconsistent payments, payment delays or requests to extend terms, this may indicate that the business is experiencing cash flow problems. If it’s temporary teething problems, they may turn to a cash injection or formal restructuring to remedy the problem, but if it’s a deep rooting issue, they may need to seek professional help from a licensed insolvency practitioner and enter an insolvency procedure.

It’s paramount to track the financial health of your supply chain as if one business collapses, this could jeopardise the way you deliver your service which could have a detrimental impact financially. There’s also a risk of bad debt which is when money owed to your business is unlikely to be paid, and therefore written off.

Supply chain risk management support from ESA Risk

For advice and support on supply chain risk management, contact us at advice@esarisk.com, on +44 (0)343 515 8686 or via our contact form.

 

This article was written by guest author Karl Hodson of UK Business Finance.

Black Friday 2022: Stay cyber-safe

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For many, Black Friday 2022 marks the official start to the Christmas shopping season and, excitingly, many retailers announce time-limited sales that promise huge savings to consumers. But it’s also the prime time for cyber criminals to cash in, too.

Some digital threats to watch out for on Black Friday 2022

Phishing attacks

While consumers rush to grab themselves a bargain, they may get caught out in a phishing scandal. Phishing links commonly lead to fake login pages, prompting victims to authenticate themselves on their web account. For instance, victims may think they are logging into their favourite retailer account, when, really, they are handing their username and password over to an attacker, who can use it to their advantage later. Although this affects users directly, it also negatively impacts the retailer’s reputation, which can be difficult to recover.

PayPal – a platform used to handle payments by many online retailers – is one of the most commonly mimicked websites. It is not only the retailer’s site that you need to be able to trust, but third-party applications used by that site, as well.

Malware  

Malware (as the portmanteau suggests) refers to any malicious software designed to harm a computer system by tracking user activity, hijacking functionality or stealing, deleting or encrypting data. Most malware enters your systems via email (widely reported at more than 90%). Statista reports that there were 2.8 billion malware attacks in the first six months of 2022 – more than half the number reported in the whole of 2021.

Malware is constantly proliferating and changing. AV Test describes how the total amount of malware has grown every year since 2008 (their first data point), and that 2021 saw the largest influx of new malware of any year on record.

This should be seen as a high-risk Black Friday cyber threat.

Formjacking

Formjacking is a form of ‘Magecart’ where malicious code is injected into the checkout forms of a website and can go undetected for a long time. Cyber criminals then hijack web forms to steal personal and payment information from shoppers.

Ransomware  

Ransomware encrypts files, so they are made inaccessible to the owner. The cyber criminal then demands a ransom payment in return for releasing the locked files. Ransomware occurs when legitimate ads are hacked (‘malvertising’), or through phishing emails and exploit kits. This will have consequential impact on consumers and retailers/businesses.

Not being prepared enough for cyber threats is a threat

A staggering 3 in 4 IT leaders expressed a lack of confidence in their company’s IT security posture and saw room for improvement. Despite this, just 57% of companies conducted a data security risk assessment in 2020 and businesses need to up their cyber security efforts to reduce these risks and minimise the impact of an attack.

How can you reduce the risk of cyber threats on Black Friday 2022? 

The above attacks take place daily and are not specific to the holiday season or large events like Black Friday, but the volume and frequency of these attacks significantly increase during these times, as more consumers make purchases online.

Being aware of these threats is a step closer to preventing cyber attacks on Black Friday 2022 and during the holiday season to come. Businesses should balance their investments in security awareness training for employees and putting robust security measures in place that can help to scan their systems for suspicious activity. Similarly, consumers need to be better educated and made aware of potential threats.

If you find yourself the victim of a cyber incident, ESA Risk can help you with your response to the attack and to make you cyber-secure in the future, through the design and execution of a strong cyber security plan. Reach out to us at advice@esarisk.com, on +44 (0)343 515 8686 or via our contact form to find out more.

 

Download: ESA Risk Special Report: The Cyber Threat Landscape 2022

ESG, greenwashing and the implications for investor risk management

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Environmental, social and governance (ESG) criteria have become an important tool for evaluating investment risks amid a growing regulatory push towards increasingly cost-effective clean energy.

Those risks include litigation, reputational harm and falling share prices arising when ‘sustainable’ funds fall short of their promises.

Research published by Morgan Stanley in 2018 indicated that 78% of investors identified risk management as “an important application for ESG data”. This is partly because ESG, unlike its predecessor corporate social responsibility (CSR), provides reporting frameworks for tracking compliance.

Consequently, funds invested in ESG assets are expected to exceed $50 trillion by 2025 – up from $22.8 trillion in 2016 to represent more than a third of total, global managed assets.

Nevertheless, there are understandable concerns that ESG is being abused by corporations and fund managers as a vehicle for greenwashing.

ESGreenwashing

Greenwashing involves duping investors and environmentally conscious consumers with exaggerated, outright false or otherwise misleading marketing claims about the sustainability of a company’s products, services or operations.

Recent allegations of greenwashing include unfounded claims about the sustainability of clothing manufacture, tree-planting schemes that fail because of slapdash planting practices, and even the world’s twenty biggest ESG funds holding investments in fossil-fuel producers.

While greenwashing undoubtedly occurs outside of ESG contexts, critics of ESG frameworks have claimed their shortcomings make ESG a particularly useful vehicle for corporate deception.

These claims are not entirely without merit.

A relatively recent phenomenon, ESG can potentially empower deliberate and unintentional greenwashing alike for want of adequate regulation, sustainable finance expertise, ‘gold standard’ reporting frameworks or a clear enough definition of ‘sustainable’ investments.

Add to that the expense and complexity of going green in many sectors, plus the regulatory incentives and penalties designed to facilitate the shift to a net zero economy, and you have the perfect recipe for overblown marketing messages.

Many investors are thankfully, it seems, aware of this problem. Research from Quilter found that misrepresented investments were the biggest ESG worry for 44% of investors.

“Greenwashing threatens to undo all the good work and progress that has been made so far in responsible investing,” said Eimear Toomey, head of responsible investment at Quilter Investors. “It is crucial that fund groups invest in the way that they say they will, so it is important investors hold them to account on this.”

Regulatory crackdown

The last two years have seen a flurry of ESG-promoting and anti-greenwashing regulatory moves both sides of the Atlantic.

The UK government’s 2021 ‘Roadmap to sustainable investing’, for instance, sets out how financial organisations will have to substantiate their ESG claims under the Sustainability Disclosure Requirements (SDR). Similarly, the Competition and Markets Authority (CMA) published a Green Claims Code in the same year that said firms making green claims “must not omit or hide important information” and “must consider the full life cycle of the product”.

There are also proposals afoot to bring ESG ratings agencies under the ambit of the Financial Conduct Authority (FCA), which is due to consult on SDR for asset managers, certain FCA-regulated asset owners and the sustainable labelling system.

A similar agenda to the UK has been pursued in the last two years by the EU, through the Sustainable Finance Disclosure Regulation (SFDR), Sustainable Finance Roadmap and Renewed Sustainable Finance Strategy.

Over in the US, meanwhile, the Securities and Exchange Commission (SEC) has recently proposed ESG disclosure requirements for funds and advisers, and created an ESG enforcement task force.

A globally significant development, meanwhile, was the launch of the International Sustainability Standards Board (ISSB) in 2021 with a mission to establish baseline standards for evaluating sustainability-related investment risks and opportunities.

Some experts anticipate that this regulatory drive could herald a wave of litigation against firms for misrepresentation of ESG products. This presents investment risks given “greenwashing allegations are highly publicised and lead to a subsequent fall in share price”, lawyers at Farrer and Co have noted.

Due diligence

ESA Risk’s Mike Wright has written previously that “due diligence is a must to ensure you’re investing in a responsible, sustainable business”. With ESG definitions so subjective, he continued, “it’s important to undertake independent research, rather than to always rely on the opinion of an investment manager”.

According to an FT Adviser piece from Maria Lozovik, a partner at Marsham Investment Management, that research should have a hardheaded focus on an investment’s likelihood of delivering market share growth and strong rates of return, “taking into account strong government support and subsidies” for sustainability.

Essentially, the implication is that ESG or climate-related marketing claims are more likely spurious if they don’t appear to be in the firm’s best interest financially.

Indeed, ESG score provider MSCI admits its ratings aren’t “a general measure of corporate ‘goodness’”, but “measure a company’s resilience to financially material environmental, societal and governance risks”.

It also notes that a company’s ESG score does not precisely reflect its carbon footprint. The financial risks presented by greenhouse gas emissions will influence the scores of power and steel companies much more significantly than healthcare firms, for which “the most financially relevant risks lie elsewhere”, says MSCI.

While useful – and perhaps increasingly so given regulatory developments – ESG alone won’t give a definitive picture of the climate-related risks investors are exposed to.

Investors should therefore research more broadly when evaluating a company’s or fund’s green credentials. This should include watching out for significant legal action or further regulatory developments and considering the implications for their investment strategy – perhaps with the help of an advisor who specialises in ESG.

If investors and their advisers can successfully sidestep greenwashing threats, then genuinely ‘responsible’ investments can potentially offer enormous returns when you consider the regulatory incentives and the innovation they spur. As Square Mile chief distribution officer Steve Kenny told FT Adviser, the money needed to make the economy “net zero is off the scale”, so the companies driving this transformation “are going to be massive”.

How ESA Risk can help

Due diligence is an area where we possess the expertise and experience to help you and your business.

For advice on private investing or conducting due diligence, contact Mike Wright, Risk Management & Investigations Consultant at mike.wright@esarisk.com, on +44 (0)343 515 8686 or via our contact form.

How to safeguard company data when employees work remotely

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By guest author Sharon McDougall of Scotland Debt Solutions.

Without safeguards in place companies face the prospect of having information stolen by hackers, or being held to ransom for their most sensitive data. So what can businesses do to protect themselves when employees work from home or from a remote location?

Create a cyber security policy

A strong cyber security policy can provide the background to the dangers of a data breach, and by ensuring all employees read and sign the policy they take greater ownership of the issue.

It should include the protocols to be followed by remote workers, and the resources available to employees to help them observe the policy, so all fully understand what is expected of them.

Cyber security training

Regular training events keep staff up-to-date on current cyber security issues, whilst also providing them with the awareness and knowledge to recognise and deal with non-standard occurrences when they’re working remotely.

Regular training events help employees to understand the importance of cyber security for their employer, and crucially, how to prevent a data security breach by proactively keeping hackers at bay.

Use a VPN

Connecting to an unsecured Wi-Fi network whilst working remotely is just one instance where company data is placed at risk. Using a Virtual Private Network, or VPN, provides a secure connection and hides internet activity by encrypting data.

Although convenient, public Wi-Fi networks in locations such as coffee shops and restaurants are known to be risky from a security point-of-view, and particularly dangerous for businesses holding sensitive data.

Use password management software

Creating strong, complex passwords, and changing them regularly, is paramount in the fight against hackers. Password management software can organise and simplify employee logins, and may be used across different types of device.

Email, banking, and social media logins are offered another layer of protection against security breach, and employees can gain more confidence that they’re logging in safely to the sites they need for work.

Multifactor identification

Multifactor authentication provides various levels of security for company data. It could require employees to receive a text message with a unique code, for example, or to answer a security question, or perhaps receive a phone call to confirm their identity.

For organisations or environments that are at particularly high risk, biometric data can be used to bolster data security. This might involve facial or voice recognition, or fingerprint scanning.

Back up files and create restore points regularly

Cloud storage provides a central location for employees to upload files securely. By regularly creating backups, hackers are also less likely to be able to successfully hold the business to ransom for vital information.

Use antivirus, anti-malware, and a firewall on all devices

Anti-malware and antivirus software, and a firewall, should be installed on all devices used by remote workers. All software needs to be regularly updated to the current version so that files and emails can be reliably scanned for viruses.

Working remotely with anti-malware constantly running in the background on all work devices further protects the company from malicious software, and can quickly detect and remove it as necessary.

If companies choose to ban the use of personal devices for work purposes they could make it part of their formal cyber security policy, particularly if they believe they’re at high risk of a security breach.

A multi-layered approach safeguards commercial data and protects businesses from unrelenting attempts by cyber criminals to hack their information, but awareness and a clear understanding of the issues is the first step in thwarting their plans.

Remote worker cyber security support from ESA Risk

At ESA Risk, we offer a broad range of cyber security services that can help you secure systems and data, become more cyber-aware, identify breaches, and prepare for and respond to attacks.

For advice and support on making your business cyber-secure, including remote worker cyber security, please contact us at advice@esarisk.com, on +44 (0)343 515 8686 or via our contact form.

 

Free download: The Cyber Threat Landscape 2022 Special Report

 

This article was written by guest author Sharon McDougall of Scotland Debt Solutions.

What would be deemed Bounce Back Loan fraud?

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By guest author Keith Tully of Real Business Rescue.

Bounce Back Loans were designed to be used for the ‘economic benefit’ of a business, which essentially means commercial activity that supports the business. ‘Economic benefit’ is a broad term, however, and when Bounce Back Loans were issued there was little specific guidance.

Legitimate uses of Bounce Back funding include refinancing debt that’s already in place, paying staff and director salaries, and supporting general cash flow. So when does potential fraud become an issue?

At what point is Bounce Back Loan fraud typically uncovered?

If a business continues to repay its Bounce Back Loan with no issues, misuse or fraudulent activity related to the loan may not become apparent. When a business has to be liquidated, however, investigations begin into why the business failed.

These investigations incorporate Bounce Back Loan applications, including the information provided by the applicant. The liquidator will also scrutinise how the funds were used, for evidence of misappropriation and fraud.

So what could be deemed Bounce Back Loan fraud, and what are the implications for those who perpetrated the fraud, whether deliberately or unwittingly?

What can constitute Bounce Back Loan fraud?

Providing false information on the application form

False information might include:

  • Inflating the company’s annual turnover figure to meet the eligibility requirements of the scheme.
  • Falsely stating the business hasn’t already taken out another Covid-19 loan. This could be deemed fraud unless the purpose of the new BBL was to refinance previous coronavirus loans.
  • Stating that the business is solvent.

Using the funds for personal purposes

Examples of personal use include:

  • Buying new personal assets with Bounce Back Loan funding.
  • Transferring the funds into a personal bank account rather than legitimately taking salaries/dividends.
  • Gifting Bounce Back Loan monies to family members or friends.

Taking more than one Covid-19 loan

If the business operates as part of a group, only one Bounce Back Loan was allowed for the group as a whole. It may be deemed fraud if two or more businesses in the group secured BBL funding.

The liquidator can scrutinise business affairs as far back as is required when conducting their investigations into a potential fraudulent application or use of the loan.

Potential consequences of Bounce Back Loan fraud

Personal liability

If Bounce Back Loan fraud is uncovered, directors face personal liability for the outstanding loan, and potentially other financial issues if further wrongdoing is found. If the director cannot afford to repay, the Insolvency Service can pursue them through the court system, potentially resulting in personal bankruptcy.

Disqualification

Director disqualification for up to 15 years is also a serious possibility. A disqualified director cannot become director of another business for the time stated, and is also banned from taking on certain other official roles, including school governor or trustee of a pension scheme.

Fines

Hefty fines can be handed down to directors and business owners for fraudulent activity. This is in addition to potential personal liability for outstanding loan amounts.

Prison sentence

In the most serious cases of fraud, criminal prosecution and a prison sentence may be the outcome.

In some cases the intent to commit fraud may not have been present, and the fraudulent activity may have been due to negligence. Bounce Back Loan fraud is said to be particularly widespread, however. In fact, a House of Commons Committee report published in April 2022 shows £4.9 million of Bounce Back Loan funds are estimated to have been lost to fraud.

Fraud investigations by ESA Risk

If you suspect that a fraud has occurred within your business and need advice or support on the next steps, we’re here to help.

Contact us at advice@esarisk.com, on +44 (0)343 515 8686 or via our contact form to find out more.

 

This article was written by guest author Keith Tully of Real Business Rescue.

What are the risks of litigation when a company has gone insolvent?

Posted on by Admin Admin

By guest author John Munnery of UK Liquidators.

Soaring energy costs, supply chain disruption, and labour shortages, are all combining to create a challenging trading environment for some.

It’s no surprise, therefore, that insolvency numbers are rising, but further problems can materialise on a personal level for directors if their company fails. Litigation is a real threat in this situation, even though the corporate structure provides legal separation from the business.

So why might litigation occur when a company has gone insolvent?

Misfeasance

The liquidator may file a court claim against a director for misfeasance if certain financial dealings become apparent during their investigations. In addition to the office-holder, claims for misfeasance can also be brought by third parties, such as creditors and shareholders.

Instances of misfeasance can include, but are not limited to:

Breaching fiduciary duty

Part of a director’s fiduciary duty is to exercise reasonable skill, care, and diligence, so if they act negligently or to the detriment of company creditors, they could face litigation and considerable financial loss on a personal level.

Concealing assets

Hiding assets deprives creditors of repayment by reducing the total available assets for sale by the liquidator. Unsecured creditors typically receive very little in cases of corporate liquidation, and if assets are removed their returns are diminished unnecessarily.

Taking an excessive salary

As directors have a legal duty to know their company’s financial position, taking an excessive salary during times of business decline could result in litigation. If a claim is filed, the court will assess the level of salaries taken by directors and could demand repayment of monies to the company for the benefit of its creditors.

Antecedent transactions

Litigation is also a risk for directors if a liquidator discovers transactions have been made that worsened the position of creditors, or contributed to the company’s downfall.

Preference payments

Repaying a creditor in full whilst failing to pay others, or paying off a loan solely because it has a personal guarantee attached, could be regarded as a preference payment as it places other creditors at a disadvantage.

Transactions at an undervalue

If a director sells a business asset at below its true value, they diminish the financial returns for company creditors. The office-holder may submit a claim to court with a view to reversing the transaction in order to boost creditor returns.

Wrongful trading

When company directors carry on trading in the knowledge that their company is insolvent, or is likely to become insolvent, they could worsen the position of creditors and subsequently face litigation for wrongful trading.

Directors should take every step possible to minimise creditor losses, including seeking professional insolvency help and ceasing trade so that no further liabilities are incurred by the business.

If the claim is upheld, a director will be directed to pay monies back to the company. The sum required is entirely at the court’s discretion, but could cover the amount of additional loss suffered by the creditors.

Fraudulent trading

Instances of fraudulent trading may be uncovered during the office-holder’s investigations if directors have intentionally set out to defraud company creditors. Cases can include deliberately taking payment from customers in the knowledge that orders will not be fulfilled, or accepting credit from suppliers with no intention of paying them.

The liquidator always interviews directors as part of their investigation, and will take the matter further if fraud becomes evident.

A change of focus in insolvency

The focus for directors of an insolvent company must fall on their creditors, rather than on the company and its shareholders. If directors fail to prioritise creditor interests, the risks of litigation are considerable.

Office-holders can look back two years or more for instances of misconduct or fraud. If creditor returns are found to have been diminished by director actions, whether deliberately or unwittingly, the courts can inflict severe sanctions, including fines and disqualification for up to 15 years.

Insolvency and debt investigations

Seeing the whole picture in insolvency and debt cases is key to maximising returns to creditors. For more information on how ESA Risk can help to identify hidden assets or locate targets who have gone to ground, contact us at advice@esarisk.com, on +44 (0)343 515 8686 or via our contact form.

You can also learn more from our Insolvency & Debt Investigations brochure.

This article was written by guest author John Munnery of UK Liquidators.

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