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Corporate & Business Law ( ENG)
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2 Section H: Governance & Ethical Issues Relating To Business Designed to give you knowledge and application of: H1. Corporate governance H2. Fraudulent behaviour
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3 Learning Outcomes H2: Fraudulent behavior Nature and legal control over insider dealing. Nature and legal control over money laundering. Potential criminal activity in the operation, management and winding up of companies. Distinguish between fraudulent and wrongful trading.
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4 Recognise the nature and legal control over insider dealing Insider Any person who is connected / deemed to have been connected to the company & who has access to unpublished, price-sensitive information in respect of company’s securities. Price sensitive information It may be periodical financial results of the company, intended declaration of dividends (interim and/or final), amalgamation, merger or takeover & issue of securities or buy-back of securities. Securities These are any financial instruments traded on stock exchange such as debentures, Shares, bonds, warrants, futures and options. Inside information relating to particular security or securities & not to securities generally. relating to a particular issuer or issuers of securities & not to issuers of securities generally.
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5 Recognise the nature & legal control over money laundering Money laundering: the process by which illegally obtained money is given the appearance of having originated from a legitimate source. In simple terms, it means cleaning of money. Integration: re-injection of the laundered proceeds back into the economy in such a way that they re-enter the financial system as normal business funds Money laundering process Placement: physical disposal of proceeds derived from illegal activity into an apparently legitimate business activity / property Layering: separation of illegitimate proceeds from their initial source by creating complex layers of financial transactions Offences Laundering: A person commits an offence if he: conceals criminal property, disguises criminal property, converts criminal property, transfers criminal property or removes criminal property Continued …
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6 Tipping off: a person commits an offence if: He knows / suspects that a disclosure falling within section 337 / 338 has been made. He makes a disclosure which is likely to prejudice any investigation which might be conducted following disclosure within section 337 & 338. But a person does not commit an offence if: He did not know / suspect that disclosure was likely to be prejudicial. Disclosure is made while carrying out a function relating to enforcement of a legislation enactment provision involving criminal conduct. He is a professional legal advisor. Failure to report: a person commits an offence if each of the following conditions is satisfied: A person knows / suspects & the person has reasonable grounds for knowing / suspecting that another person is engaged in money laundering. Information / other matter on which a person’s knowledge / suspicion is based, which gives reasonable grounds for such knowledge / suspicion, discovered by him in course of business in regulated sector. Person does not make required disclosure as soon as is practicable after information / other matter comes to his attention. Continued …
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7 Penalties: Section 327, 328 or 329: Money laundering: On summary conviction: imprisonment for a term not exceeding six months / a fine not exceeding statutory maximum or both On conviction on indictment: imprisonment for a term not exceeding 14 years, / a fine or both Section 330, 331, 332 or 333: Failure to report & tipping off: On summary conviction: imprisonment for a term not exceeding six months / a fine not exceeding statutory maximum or both On conviction on indictment: imprisonment for a term not exceeding 5 years / a fine or both Distinguish between fraudulent and wrongful trading Fraudulent Trading: according to Section 213 of Insolvency Act 1986, fraudulent trading is where any business of the company has been carried out with intent to defraud creditors / for any fraudulent purpose. Fraudulent intent must be shown. Continued …
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8 Possible court orders: Any person knowingly a party to fraud may be made liable to contribute to company's assets: Insolvency Act, 1986, sec213(2) Any person knowingly a party to fraud may be convicted & imprisoned and/or fined: CA 1985, section 458 Any person knowingly a party to fraud may be disqualified from being director of any company by passing a disqualification order of up to 15 years: CDDA 1986, sec 4 Continued …
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9 Wrongful Trading: according to s.214 of IA 1986, where a company has gone into insolvent liquidation & it appears to the court that any person who has been a director of the company knew / ought to have known that this would occur & has failed to take all reasonable steps to minimise loss to the creditors Possible court orders: The court may pass the following orders against defaulting directors: If company continues to trade whilst it is insolvent, directors of the company may become personally liable to contribute to company's assets. Directors become personally liable to meet the deficit to unsecured creditors if company's financial position is made worse by directors continuing to trade. Directors who continue to trade whilst the company is insolvent may face disqualification under the Company Directors Disqualification Act 1986. Refer to Self Examination Question 1 (page 465) Continued …
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10 Recap Nature and legal control over insider dealing. Nature and legal control over money laundering. Potential criminal activity in the operation, management and winding up of companies. Distinguish between fraudulent and wrongful trading.
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