Reporting Fraud During Insolvency Proceedings

Fraud during insolvency proceedings can deepen losses for creditors, prejudice the fair distribution of assets, and undermine confidence in the insolvency system in England and Wales. Whether misconduct involves directors concealing assets, creating “phoenix” companies to avoid liabilities, or scams exploiting vulnerable creditors, there are clear legal paths for reporting suspected fraud and misconduct. This article explains the legal framework, practical steps for reporting, relevant authorities, timings, and what happens after a report is made.

What Is Insolvency‑Related Fraud?

Insolvency fraud covers a range of dishonest practices linked to insolvency processes, including:

• Trading while insolvent with intent to mislead creditors.
• Phoenix company schemes, where directors close an insolvent company and immediately start a new one to continue business without liabilities.
• Concealment of assets, including transferring assets out of reach of a liquidator or administrator.
• False documentation, inaccurate accounting records or misleading disclosures.
• Breaches of disqualification and restriction orders, such as acting as a director while subject to a court disqualification.

Fraud in insolvency is not merely poor conduct; it can be a criminal offence and may also lead to civil penalties such as director disqualification, monetary penalties or compensation claims. In some cases, regulatory or law enforcement action may follow.

Key Authorities for Reporting Fraud

Action Fraud and the National Fraud Intelligence Bureau

Action Fraud is the UK's national reporting service for fraud and cybercrime, now linked with the National Fraud Intelligence Bureau (NFIB). Members of the public or organisations can report suspected fraud online or by telephone. Reports are analysed and, where appropriate, referred to police forces or partner agencies for investigation.

• How to report: Online via the Report Fraud portal or by calling 0300 123 2040.
• Scope: Fraud offences including those connected with insolvency, such as phoenix company schemes or deception of creditors.

Reporting to this centre generates an intelligence record that can support criminal investigation if sufficient evidence exists.

The Insolvency Service

The Insolvency Service is a statutory agency with powers to investigate serious misconduct in insolvency contexts. It can look at:

• Conduct of directors in insolvency cases (compulsory, creditors' voluntary or members' voluntary liquidation or administration).
• Misconduct by bankrupts or individuals with restrictions under bankruptcy orders.
• Breaches of company law relating to insolvency processes.

To report suspected fraud or misconduct to the Insolvency Service:

• Submit a complaint online or in writing using the official forms provided by the agency.
• If the company is already in compulsory liquidation, contact the official receiver handling the case with your concerns.
• Complaints can cover ongoing fraud, asset concealment and breaches of disqualification orders.

The Insolvency Service prioritises complaints that suggest serious abuse, misuse of assets, or conduct that poses risk to the public or creditors.

What to Report

Reports should focus on factual and specific concerns, avoiding speculation. Useful examples include:

• Evidence of deliberate concealment or removal of company assets.
• Documents indicating false financial records or fabricated liabilities.
• Signs that directors or officers ignored insolvency law to disadvantage creditors.
• Phoenix company activity where assets appear transferred to a new entity without legitimate commercial justification.
• Calls or communications from individuals falsely claiming to be liquidators or official receivers, particularly requesting fees – official receivers never charge creditors directly for returns.

When suspicious activity is reported clearly and with supporting documentation, authorities can assess whether to launch an investigation or pass intelligence to other bodies, such as the police or the Financial Conduct Authority.

How to Make a Report

Step 1: Gather Information

Collect all relevant evidence and details that support your suspicion of fraud, including:

• Correspondence, emails or letters.
• Company documentation, financial records or public filings.
• Dates, names and descriptions of the misconduct.
• Any communications from suspicious third parties claiming to represent insolvency professionals.

Clear documentation strengthens the credibility of a report and helps enforcement agencies assess whether there is reasonable cause to investigate.

Step 2: Report to the Correct Authority

• Use the Report Fraud service for general fraud or suspected criminal activity linked to insolvency.
• Contact the Insolvency Service if the misconduct relates specifically to insolvency proceedings, directors' conduct in insolvency, breach of court orders, phoenix activity or asset concealment.
• If a company has already entered compulsory liquidation, you can also raise concerns with the official receiver managing that case.

Completing official reporting forms online ensures that your submission is logged and can enter the triage process for review.

Step 3: Provide Follow‑Up Information

After reporting, you may be contacted by investigators or enforcement officials for additional information, clarification or evidence. Cooperating promptly with these requests supports the progress of any inquiry.

What Happens Next

Assessment and Review

Both Action Fraud and the Insolvency Service conduct initial assessments of reports to determine whether the issue falls within their remit and whether there is sufficient information to proceed. Reports may be:

• Declined if there is insufficient evidence.
• Passed to law enforcement for investigation.
• Addressed by regulatory action or referrals to prosecutors.

Investigation timelines vary depending on case complexity and available resources.

Possible Outcomes

If authorities find credible evidence of fraud in insolvency:

• Criminal charges may be brought against individuals, which could lead to prosecution in criminal courts.
• Disqualified director proceedings can be initiated, preventing individuals from acting as directors for set periods.
• Civil enforcement action may follow, including asset recovery or compensation orders.
• Official receivers or liquidators may adjust their conduct of the insolvency based on findings.

Importantly, reporting fraud does not guarantee a particular outcome, but it ensures that allegations are formally assessed and that any necessary action is considered.

Reporting Misconduct vs Civil Remedies

Reporting suspected fraud to enforcement bodies is separate from pursuing civil claims for losses suffered due to insolvency fraud, such as misfeasance or recovery actions. Civil claims may be pursued through the courts, often with the assistance of legal counsel, and require different procedures and evidence standards.

If you believe you have suffered financial loss, you may consider:

• Seeking legal advice on recovery options.
• Considering claims against directors personally if misconduct caused losses.
• Exploring statutory remedies under insolvency law, such as claims for misfeasance or preferences.

Key Takeaways

Fraud during insolvency proceedings can seriously harm creditors and compromise the integrity of the insolvency system. In England and Wales, there are established mechanisms to report suspected fraud or misconduct:

• Use the national Report Fraud service for allegations of criminal fraud or cybercrime.
• Report misconduct connected with insolvency proceedings to the Insolvency Service or the official receiver handling a liquidation.
• Provide clear evidence, support your report with documentation, and be prepared to respond to follow‑up inquiries.

Identifying and reporting fraud protects creditors' interests, supports enforcement of insolvency law and may lead to criminal or civil action where appropriate.