When a business discovers fraud, whether through false invoices, misappropriated funds or payment diversion, two questions arise: how do we recover our losses, and how do we hold the wrongdoer accountable?

The answer depends on whether you pursue criminal prosecution, civil litigation, or both.

Understanding Fraud in a Business Context

Fraud in business takes many forms:

  • Misappropriation of funds by employees or partners
  • Dishonest suppliers submitting inflated or false invoices
  • Misrepresentation by customers to secure credit or contracts
  • Phishing attacks and email fraud targeting payments
  • False accounting or financial statement fraud
  • Asset misappropriation or theft

Regardless of how it arises, businesses must decide the most effective route to recover losses and hold wrongdoers accountable.

Criminal Proceedings: Prosecution and Punishment

Criminal prosecution is carried out by the state, typically through the police, Crown Prosecution Service (CPS), or bodies such as the Serious Fraud Office (SFO) for more complex financial crimes.

Purpose of Criminal Proceedings

The focus is on punishing wrongdoing in the public interest. Outcomes can include:

  • Fines
  • Imprisonment
  • Confiscation of assets under the Proceeds of Crime Act 2002 (POCA)
  • Compensation orders (though these rarely result in full recovery)

Standard of Proof

Criminal cases require proof beyond reasonable doubt. This is a high threshold, particularly in fraud cases where intent and dishonesty must be established.

Limitations for Businesses

Criminal proceedings offer limited control for the victim business:

  • The police or CPS decide whether to investigate and prosecute
  • The process is often slow, sometimes taking years
  • The business cannot direct the investigation or prosecution
  • Compensation is possible but not guaranteed
  • Recovery of losses is not the primary aim

A criminal case may satisfy a desire for justice and deter future misconduct, but it rarely achieves full financial recovery.

Civil Proceedings: Recovery and Control

Civil litigation is brought by the business itself with the goal of recovering losses. This approach gives the claimant more control and offers a range of remedies.
the breach and its impact.

Available Remedies

  • Damages for financial loss
  • Freezing injunctions to preserve assets before judgment
  • Search orders to secure evidence and documents
  • Disclosure orders requiring the defendant to reveal information about assets
  • Tracing remedies to follow misappropriated assets
  • Proprietary claims where funds can be identified and recovered

Standard of Proof

Civil cases require proof on the balance of probabilities. This is a significantly lower threshold than the criminal standard, making civil claims easier to establish.

Advantages of Civil Proceedings

  • The business controls the litigation and strategy
  • Proceedings are often faster than criminal prosecutions
  • The focus is on recovery, not punishment
  • Interim remedies can be obtained quickly
  • Civil proceedings can run independently of any police investigation

Freezing Injunctions and Asset Preservation

One of the most powerful tools in civil fraud cases is the freezing injunction (formerly known as a Mareva injunction). This prevents the defendant from disposing of or dealing with assets within or outside the jurisdiction.

When Freezing Injunctions Are Granted

The court will grant a freezing injunction if:

  • There is a good arguable case against the defendant
  • There is a real risk that the defendant will dissipate assets to avoid judgment
  • It would be just and convenient to grant the order

Freezing injunctions can be obtained without notice to the defendant where there is a risk they would dissipate assets if warned. These orders are backed by penal notices and breach can result in contempt of court proceedings.

Can Criminal and Civil Proceedings Run Together?

Yes. Criminal and civil proceedings can run in parallel, but timing and coordination are important.

Considerations When Running Both

  • A civil case may prompt a criminal investigation or vice versa
  • Evidence gathered in civil proceedings may be used in criminal investigations
  • Care must be taken not to prejudice one route by pursuing the other too aggressively
  • Civil proceedings may be stayed (paused) if they would prejudice a criminal trial
  • Privilege against self-incrimination may arise in civil proceedings

In some cases, the threat or existence of criminal proceedings strengthens the position in civil litigation by putting pressure on the defendant.

The Role of Private Prosecutions

In some cases, businesses can bring private criminal prosecutions rather than relying on the CPS or SFO. This is relatively rare but can be effective where:

  • The CPS has declined to prosecute
  • The business wants control over the prosecution strategy
  • There are commercial reasons to pursue criminal sanctions

Private prosecutions are expensive and complex, requiring specialist legal advice.

HMRC Investigations and Tax Fraud

HMRC has powers to investigate and prosecute tax fraud cases, including VAT fraud, PAYE fraud, and other tax evasion offences. HMRC can also pursue civil penalties and recover unpaid tax through civil proceedings.

Businesses facing HMRC investigations should seek specialist advice immediately, as the consequences can include both criminal prosecution and substantial financial penalties.

Once the limitation period expires, you lose the right to bring a claim. It is important to seek advice promptly to avoid missing deadlines.

Frequently Asked Questions

Civil fraud cases require proof on the balance of probabilities (more likely than not). However, because fraud is a serious allegation, courts require clear and cogent evidence. This is still significantly easier to meet than the criminal standard of beyond reasonable doubt.

Yes. Freezing injunctions can be obtained before issuing a claim. These are often applied for without notice to the defendant to prevent them dissipating assets. You must give undertakings to the court, including an undertaking in damages if the injunction is found to have been wrongly granted.

Criminal fraud investigations can take many months or even years, particularly for complex cases. The SFO’s average case length is around four years from referral to conclusion. Police investigations for smaller frauds may be quicker but still take many months.

Obtaining judgment does not guarantee recovery. If the defendant has no assets, you may recover little or nothing. This is why freezing injunctions and early asset tracing are so important in fraud cases.

If you succeed in a civil fraud claim, you can usually recover a significant proportion of your legal costs from the defendant. However, cost recovery is not automatic and depends on the court’s assessment.

The usual time limit is six years from when the fraud was discovered, or could reasonably have been discovered with due diligence. This can extend to six years from when the fraud actually occurred in cases of deliberate concealment.

Getting Legal Advice on Business Fraud

If your business has been the victim of fraud, early advice is essential. Delays can result in lost assets or evidence.

At Franklins Solicitors, our commercial litigation team can help you assess the best strategy to deal with fraud and misconduct. We can advise on the viability of both civil claims and criminal referrals, and work quickly to secure freezing orders or injunctions where needed to protect your position.

Contact us on 01604 344562 (Northampton) or 01908 916096 (Milton Keynes), or email [email protected] to discuss your options.

Disclaimer: The information provided on this blog is for general informational purposes only and is accurate as of the date of publication. It should not be construed as legal advice. Laws and regulations may change and the content may not reflect the most current legal developments. We recommend consulting with a qualified solicitor for specific legal guidance tailored to your situation.

Written by George Smith
Head of Litigation and Dispute Resolution, Dispute Resolution at Franklins Solicitors LLP

Specialises in contentious trusts and probate, landlord and tenant matters, debt recovery, contract disputes, Court of Protection, lease extensions, injunctions, guarantor advice and boundary disputes.

George Smith is a Chartered Legal Executive and Commissioner of Oaths with over 29 years’ experience in civil and commercial litigation and dispute resolution. He originally joined Franklins Solicitors in 1994, rejoining in 2023 after a 20-year break.

George handles a broad range of matters including contentious trusts and probate, landlord and tenant disputes, debt recovery, defamation, contract disputes and Court of Protection issues. Known for his no-nonsense, calm approach, he focuses on delivering swift and effective solutions to complex disputes.

Outside work, George enjoys backgammon, reading books, attending concerts, travelling and sharing his passion for the 1980s with his four children.

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