Fraudulent trading is a criminal offense in some jurisdictions, commonly occurring in the context of bankruptcy law. It involves accepting orders without the intention or ability to fulfill them, causing creditors to suffer losses. To prove it, it must be demonstrated that someone profited from the transactions. Damages are awarded to compensate creditors, and proving it can be difficult due to attempts to conceal the beneficiary.
Fraudulent trading is a legal offense in some jurisdictions involving trading and engaging in business with the intent to defraud creditors. It most commonly occurs in the context of bankruptcy law in the UK, although it may appear in other regions, sometimes under a different name. A connected charge, illicit trade, is a less serious offense with a lower standard of proof, allowing for damages to be awarded in cases where fraudulent trade cannot be proven.
In fraudulent trading, a company facing bankruptcy accepts orders for products and other services, collecting the funds associated with those orders without any intention or ability to fulfill the orders. The creditors believe that as the company continues to accept orders and operate normally, it is in good financial health. When the business goes bankrupt, orders evaporate, funds are already spent, and creditors suffer a loss.
To prove allegations of fraudulent trading, it must be demonstrated that not only did the company knowingly engage in business interactions it had no intention of completing, but that someone also profited from those transactions. If an executive or owner of a company has benefited from a situation where an order has been accepted under dubious circumstances, it can be considered a fraudulent trade. A business owner who accepts an order for a large batch of products and pockets the proceeds, knowing that the order will not be filled, would face fraudulent business spending.
In the process of going through a bankruptcy case, the company’s business activities will be scrutinized for signs of fraudulent trading and other illegal activities. If someone profited from these activities, that person may be liable to pay damages. These damages are accumulated with other company assets set aside to compensate creditors once the bankruptcy is concluded. The goal is to compensate as many creditors as possible with the proceeds of the company’s liquidation, reducing their losses, and prevent people from holding ill-gotten gains.
Proving fraudulent trading can be difficult. While it may be possible to demonstrate that a company knowingly entered into commercial contracts without intent to close the deal, it may be more difficult to demonstrate how someone benefited. In such transactions, it is common to take measures to conceal the final beneficiary of the fraud with the aim of avoiding legal sanctions. Carefully examining company records and looking for witnesses willing to report can be invaluable in proving the allegation and collecting damages.
Protect your devices with Threat Protection by NordVPN
