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Account Freezing Orders – what are they and do directors need to be worried?

A spotlight has been thrown on just how many companies took out Covid support loans fraudulently, and the government is fighting to track down those companies who haven’t been lawfully conducting themselves. One of the powers that are available to crime agencies or the HMRC is an Account Freezing Order or AFO. If you’ve never heard of this before, we explain what one is and when you need to be worried.

The Account Freezing Order was ushered in when the Criminal Finance Act 2017 (CFA 2017) came into force. It literally gives the power to freeze bank accounts and even forfeit them if unlawful activity is suspected.

Unlike the widely reported Unexplained Wealth Orders (UWO), which the press dubbed “McMafia Orders”, AFOs don’t require a very high level of evidence to obtain. The applicant only has to show that it has reasonable grounds to suspect that monies held in a bank account could be what is described as “recoverable property” or that they might be used in “unlawful conduct”.

Who can apply for an AFO?

An AFO is applied for typically by either the National Crime Agency, the Serious Fraud Office or the Police. It can also be applied for by HMRC, which is what we’re going to focus on.

The application for an AFO is a without notice application (for obvious reasons) and HMRC has reported that around 95% of all applications in 2022 were successful. In total they reportedly obtained 151 orders last year.

What happens when an AFO is granted?

Once the AFO has been obtained then the bank account(s) of the entity that the order was granted for (which could be a limited company or an individual) is frozen. Following this, the applicant must then obtain an Account Forfeiture Order. The issue here is that there is a much higher burden of proof required in order for the court to make a forfeiture order.

Worrying developments

In a recent article by Neil Davies and Partners on the same subject, a director had been “hand-delivered a letter in relation to a NATIS led Proceeds of Crime Act (‘POCA’) investigation, where an AFO was sought, arising out of alleged misuse of Bounce Back Loan funds.”

This is clearly of major concern to any company where a Bounce Back Loan (BBL) has been obtained.

NATIS is the National Investigation Service and according to its website it is set up to tackle “serious organised crime”. In the case that Neil Davies and Partners commented on, the total debt amounted to circa £60,000.

So has the remit of NATIS changed, and can any director expect to have their bank account frozen where a Bounce Back Loan has been obtained?

That’s uncertain at the moment, but clearly NATIS have already taken some considerable time in this case to obtain information about whether the company applied for a Bounce Back Loan fraudulently.

Is this then the tip of the iceberg, and is there going to be a widespread use of AFOs in cases where the authorities believe there are funds available and that these monies have been obtained fraudulently?

The answer is it is looking that way.

Once the AFO has been obtained there could be up to two years where the applicant can investigate the affairs of the company/director, and if it can prove that the funds were obtained fraudulently then it can seize those funds.

In addition, if the case is proven, and there are insufficient assets in the company to repay the fraudulently obtained loan, then a Directors Disqualification Compensation Order can be sought, ordering the director to repay any outstanding monies.

Anything positive?

It was reported last year that although HMRC managed to get 151 AFOs and froze a total of £26million in assets, more than £10million of this amount was subsequently returned to the companies/individuals, clearly showing that the orders were discharged without forfeiture.

What do I do if I get a notice of an AFO?

Firstly, get help. Don’t stick your head in the sand like an ostrich. It’s imperative that you consult with a specialist legal firm as soon as possible, and they can produce a plan of action to defend your position.

What do I do if I’ve got a BBL which I think I have applied for fraudulently?

Initially speak with your accountant to get an independent opinion. If you or they think that there may be an issue with maintaining the monthly payments, or if you think that your company is insolvent, reach out to the team at BLB Advisory for some friendly proactive advice.