1. Corporate & Business Law ( ENG)

2. 2 Section H: Governance & Ethical Issues Relating To Business Designed to give you knowledge and application of: H1. Corporate governance H2. Fraudulent behaviour

3. 3 Learning Outcomes H2: Fraudulent behavior  Nature and legal control over insider dealing.  Nature and legal control over money laundering.  Potential criminal activity in the operation, management and winding up of companies.  Distinguish between fraudulent and wrongful trading.

4. 4 Recognise the nature and legal control over insider dealing Insider Any person who is connected / deemed to have been connected to the company & who has access to unpublished, price-sensitive information in respect of company’s securities. Price sensitive information It may be periodical financial results of the company, intended declaration of dividends (interim and/or final), amalgamation, merger or takeover & issue of securities or buy-back of securities. Securities These are any financial instruments traded on stock exchange such as debentures, Shares, bonds, warrants, futures and options. Inside information  relating to particular security or securities & not to securities generally.  relating to a particular issuer or issuers of securities & not to issuers of securities generally.

5. 5 Recognise the nature & legal control over money laundering Money laundering: the process by which illegally obtained money is given the appearance of having originated from a legitimate source. In simple terms, it means cleaning of money. Integration: re-injection of the laundered proceeds back into the economy in such a way that they re-enter the financial system as normal business funds Money laundering process Placement: physical disposal of proceeds derived from illegal activity into an apparently legitimate business activity / property Layering: separation of illegitimate proceeds from their initial source by creating complex layers of financial transactions Offences Laundering: A person commits an offence if he: conceals criminal property, disguises criminal property, converts criminal property, transfers criminal property or removes criminal property Continued …

6. 6 Tipping off: a person commits an offence if:  He knows / suspects that a disclosure falling within section 337 / 338 has been made.  He makes a disclosure which is likely to prejudice any investigation which might be conducted following disclosure within section 337 & 338. But a person does not commit an offence if:  He did not know / suspect that disclosure was likely to be prejudicial.  Disclosure is made while carrying out a function relating to enforcement of a legislation enactment provision involving criminal conduct.  He is a professional legal advisor.  Failure to report: a person commits an offence if each of the following conditions is  satisfied:  A person knows / suspects & the person has reasonable grounds for knowing / suspecting that another person is engaged in money laundering.  Information / other matter on which a person’s knowledge / suspicion is based, which gives reasonable grounds for such knowledge / suspicion, discovered by him in course of business in regulated sector.  Person does not make required disclosure as soon as is practicable after information / other matter comes to his attention. Continued …

7. 7 Penalties: Section 327, 328 or 329: Money laundering:  On summary conviction: imprisonment for a term not exceeding six months / a fine not exceeding statutory maximum or both  On conviction on indictment: imprisonment for a term not exceeding 14 years, / a fine or both Section 330, 331, 332 or 333: Failure to report & tipping off:  On summary conviction: imprisonment for a term not exceeding six months / a fine not exceeding statutory maximum or both  On conviction on indictment: imprisonment for a term not exceeding 5 years / a fine or both Distinguish between fraudulent and wrongful trading Fraudulent Trading: according to Section 213 of Insolvency Act 1986, fraudulent trading is where any business of the company has been carried out with intent to defraud creditors / for any fraudulent purpose. Fraudulent intent must be shown. Continued …

8. 8 Possible court orders:  Any person knowingly a party to fraud may be made liable to contribute to company's assets: Insolvency Act, 1986, sec213(2)  Any person knowingly a party to fraud may be convicted & imprisoned and/or fined: CA 1985, section 458  Any person knowingly a party to fraud may be disqualified from being director of any company by passing a disqualification order of up to 15 years: CDDA 1986, sec 4 Continued …

9. 9 Wrongful Trading: according to s.214 of IA 1986,  where a company has gone into insolvent liquidation & it appears to the court that any person who has been a director of the company knew / ought to have known that this would occur &  has failed to take all reasonable steps to minimise loss to the creditors Possible court orders: The court may pass the following orders against defaulting directors:  If company continues to trade whilst it is insolvent, directors of the company may become personally liable to contribute to company's assets.  Directors become personally liable to meet the deficit to unsecured creditors if company's financial position is made worse by directors continuing to trade.  Directors who continue to trade whilst the company is insolvent may face disqualification under the Company Directors Disqualification Act 1986. Refer to Self Examination Question 1 (page 465) Continued …

10. 10 Recap  Nature and legal control over insider dealing.  Nature and legal control over money laundering.  Potential criminal activity in the operation, management and winding up of companies.  Distinguish between fraudulent and wrongful trading.

11. [training@getthroughguides.com]