LIFTING THE CORPORATE VEIL

John McGovern

Head of Corporate Defence

MacRoberts LLP

Lifting the Corporate Veil

A Guide to the Risks of Exposure to Criminal Prosecution for Companies and Directors

Outline of Seminar

• Who we are and what we do

• Typical case studies

• Emerging personal risks for company directors and officers

• Insure against costs of protecting your interests in corporate investigation and prosecution

Corporate Defence

• Corporate Defence Practice Group est May 2015

• James McMillan – Associate

• David Magee – Senior Solicitor

• Team of 10 solicitors

Key contact: John McGovern

• Solicitor Advocate (Criminal)

• 25+ years criminal litigation experience

• Advanced criminal law tutor at Glasgow University

• Former President of Glasgow Bar Association

• Member of White Collar Crime Committee of American Bar Association

• Construction law LLM

What We Do

• Protect the interests of directors, company officers and corporate bodies

• Regulatory investigations

• Criminal prosecutions

Client Profile

• Individual Sole Traders

• SME’s

• Global Corporate Companies

Client Profile

• Service Sectors

oAgriculture

oConstruction

oEnergy

oEngineering

oFinancial

oFood

oManufacturing

oOil and Gas

oTechnology

oWaste and Recycling

What is a Regulatory Investigation?

• Company / organisation / charity

• Owners / directors / employees / trustees

• Statutory regulator investigation / COPFS

Case Studies

• Health and Safety (HSE)

• Environmental (SEPA)

• Road Traffic (Police Scotland)

Case Studies: Health and Safety

• Timber manufacturer

• Corporate homicide investigation – fatal accident

• HSE and Crown Office negotiations

• £80,000 fine (PUWER Regs)

Case Studies: Environmental

• Manufacturing company

• SEPA investigation / Defence investigation

• ECHR Article 6 challenge

• Outcome to challenge awaited

Case Studies: Road Traffic Act

• International delivery company

• Technical failing

• Found not guilty after trial

• Reputational damage and criminal conviction avoided

Lifting the Corporate Veil: Limited Liability?

• Separate legal personality

• Directors and shareholders generally not held liable

Lifting the Corporate Veil

• Increasing trend with courts and prosecutors across the UK to “lift the corporate veil”

• Looking at the controlling minds to identify responsibility

• Personal conduct – Increasing scrutiny from regulators and investigators

Health and Safety: HSE Investigation Focus

Criminal prosecution of the EMPLOYER and/or COMPANY DIRECTORS under s.37 HSWA

1974

Breach of section 3 HSWA 1974: EMPLOYER ensures the

health and safety of third parties from its activities

Breach of section 2 HSWA 1974: EMPLOYER ensures the heath and safety of its

employees

Health and Safety: Section 37 of HSWA 1974

Who does it apply to?

• Specific provision for prosecution in relation to health and safety offences of:

“any director, manager, secretary or other similar officer of the body corporate or a person who was purporting to act in such capacity.”

Health and Safety: Section 37 Prosecutions

How does it apply?

• If Director/Manager:

oPosition of authority

oHas knowledge, or ought to have knowledge

oConsented to breach

oAware of breach but did nothing

Health and Safety: Section 37 Sentences

• Prosecutions under s.37 HSWA increased by 400% in

past 5 years

• If director prosecuted, she/he is liable on conviction to:

o2 years imprisonment

oUnlimited financial penalty

oUp to 15 years director disqualification

Motoring Offences: Driving at Work

• Increasing prosecution focus on corporates where employee driving

• One quarter of annual vehicle mileage on Britain’s roads are for work purposes

• 800 to 1000 people killed annually in work related crashes

• Business drivers collision rates: 30-40% higher than those of private drivers

• 4 in 10 tiredness related crashes involve a commercial vehicle

Motoring Offences: Big Issues

• Car is a machine like any other work equipment

• Driving at work policy scrutinised by HSE

Motoring Offences: HSE/Police Considerations

• Speeding due to demanding work schedule

• Injury/death caused by mobile phone

• Employees on call 24 hours a day

•Injury/death caused by drink driving

• Falling asleep at the wheel

• Undiagnosed medical condition

• Condition of company vehicle

• Condition of employee’s vehicle

used for work

• Employee uninsured

Motoring Offences: HSE/Police Considerations

Environmental Offences: Directors’ Personal Exposure

• Section 157(1) of the Environmental Protection Act 1990 almost identical in terms to section 37 of the HSWA 1974

Environmental Offences: Court Decisions

STUD Recycling Ltd - Airdrie Sheriff Court, 5 March 2014

• Company fined £12,000

• Director, Joseph Cahill sentenced to 6 months imprisonment

Doonin Plant Ltd - Livingston Sheriff Court, 23 October 2014

• Company fined £200,000

• Director, Gary Doonin sentenced to 250 hours, Community Payback Order

Earthmover Tyre Recycling Ltd - Hamilton Sheriff Court, 27 February 2015

• Company fined £195,000

• Director, Paul Cook sentenced to 14 months imprisonment

Proceeds of Crime Act 2002 (POCA)

• Increasing criminal prosecution focus

• ‘Not just drug dealers’ - business activity becoming the focus of increasing POCA intervention

• Proceeds of Crime - any financial benefit which arises from criminal activity

• Wider scope (HSE?)

• Confiscation of assets, including personal assets

Emerging Issues

• SEPA Enforcement Policy

• Data Protection

• Scottish Sentencing Council (SSC)

• FFI

Insured for Legal Defence Costs?

• Typical EL/PL policy claim results in insurer’s own appointed lawyers

• Economic interests of insurers vs. client interests

• AXA developing Management Liability product in conjunction with MacRoberts

• No 51% prospect of success; no accident “event”

One Final Thing

• Legal Professional Privilege

KEEP YOUR BUSINESS SAFE!

Our team is on call 24/7 to offer immediate assistance to your business

in the event of raids, inspections or prosecutions

Call our 24/7 Emergency Response Hotline:

07950 860 241

Thank You

Any Questions