Successful prosecution on behalf of local authority for fraudulent trading offences

Matt Bosworth, Partner in the Russell-Cooke Solicitors, regulation and compliance team.
Matt Bosworth
3 min Read

Russell-Cooke's regulation team, led by partner Matt Bosworth, was instructed by a local authority, Tendring District Council, to bring a private prosecution of David Eve, the director of Standing Ovation Entertainments Limited (SOEL) for one charge of fraudulent trading.

Mr Eve was charged with acting contrary to Section 993(1) of the Companies Act 2006 between 1 January 2015 and 1 April 2017.

Why did the Council bring a private prosecution?

Russell-Cooke was instructed by the Council because police would not pursue any action due to the relatively small amount involved and because the defence running legal argument that indicated that they would argue it was an abuse for Tendring District Council to be both 'victim' and prosecutor. Miles Bennett of 5 Paper Buildings was instructed as prosecution counsel.

Background to the case

SOEL sold tickets on behalf of the Princes Theatre, Clacton-on-Sea, which was operated by the Council, in return for which it received booking fees and a commission payment. SOEL had provided similar services to the Council for a decade.

During the last 12 to 18 months of trading, SOEL's financial position (which had never been profitable) gradually worsened so that it was unable to pay its liabilities as they fell due. However, the Council was not notified of these financial difficulties until it called Mr Eve in for a meeting to discuss outstanding invoices. A short time later SOEL was placed into formal insolvency by Mr Eve, at which time the Council was a creditor that SOEL owed £112,000.

Following a preliminary meeting, information was requested from Mr Eve and the Insolvency Practitioners appointed by him to look after the affairs of SOEL in its liquidation, Anthony Batty & Company. It became apparent that Tendring District Council was the main creditor of SOEL and that the company's difficulties in meeting its liabilities would have been apparent to Mr Eve for some time.

Most of the factual elements of the offence of fraudulent trading were admitted by the defendant, and the key issue to be decided by the jury at Chelmsford Crown Court was whether the defendant had acted dishonestly.

The prosecution case

The prosecution case was that the proceeds from ticket sales belonged to the Council and were to have been ring-fenced by Mr Eve, because he had confirmed to staff at the Princes Theatre that SOEL was acting as its agent and had assured the Council that it would comply with industry best practice (the Society of Ticket Agents and Retailers 'STAR' Code of Practice). 

In addition, the prosecution put to the court that SOEL should not have continued to sell tickets for the Theatre when Mr Eve must have known that SOEL was heading towards insolvency. In any event, he should have notified the Council of SOEL's financial difficulties as it was the major creditor.

After ten days of hearing evidence and one and a half days of legal directions, the jury took just under nine hours to reach a guilty verdict.

An unusual case

This was an unusual fraudulent trading case because the defendant was not a typical scam artist who had set up a company with the intention to defraud from the outset. Instead, the prosecution case was that whether through a sense of pride, hubris or deliberately burying his head in the sand, the defendant careened on, debts increasing, robbing Peter to pay Paul, in such a way that his creditors, particularly Tendring District Council, were increasingly put at risk of never getting their money.

Mr Eve will be sentenced on 24 March 2020 at Chelmsford Crown Court.

Briefings Business Russell-Cooke regulation team Matt Bosworth local authority