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9 April 2014
Another article about stealing from a company? Well, no. This is about the new and disturbing trend of stealing the company itself, which is depressingly simple. The fraudster forges change of directors and registered office forms and lodges them at Companies House, which produces on request a certificate of good standing, confirming that the company is solvent and identifying its directors and registered office. So far as third parties are concerned, the fraudster then has apparent legitimate control of the company. The original, genuine directors know nothing about what has happened and only find out by chance, usually when it is too late.
Once they have 'control', the fraudster falsifies board minutes, changes bank mandates to empty accounts and, if possible, sells company assets. They then either disappear or file new Companies House forms restoring the original position, so that the original directors are kept in ignorance for even longer while the fraudster escapes. The problem is compounded when the fraudster has stolen a legitimate person's identity. If cleverly executed and given enough time, neither fraudster nor funds might ever be found.
Far-fetched? Sadly not. The recent case of West Anglian Group Ltd & anor v Makarov & ors (unreported) is proof. In that case, Pavel Makarov did exactly as described above, impersonating the directors of an English company and changing its registered office. Suitably equipped, he then sold the company's main asset, an overseas subsidiary owning a large and valuable office block in Moscow. The purchaser of the subsidiary then began to sell off the office block floor by floor. The original directors of the English company and its owners discovered what had happened when armed guards prevented them from entering their Moscow building.
A search at Companies House disclosed the certificate of good standing issued in favour of Makarov and the underlying documents he had forged. The 'real' Makarov knew nothing about it. He was a construction worker whose identity had been stolen by a fraudster. Freezing orders in both London and Moscow were obtained, documents were produced from various third parties by compulsion and appropriate declarations obtained in both London and Moscow to regularise matters. In this case, the true owners were lucky to have found out what had happened relatively quickly and were therefore able to prevent company assets disappearing.
So what can be done? The historic attitude of Companies House has been simple. It is not responsible for, nor does it have, the resources to check the validity of the thousands of filings it receives each day. Documents are accepted for registration in good faith and certificates of good standing are issued based on the contents of those filings. But Companies House is not blind to persuasion that the problem exists, nor that it is growing and that, however unwittingly, one of its key perceived strengths as the repository of accuracy is being used to undermine it. In consequence, in January Companies House introduced two new safeguard systems designed to minimise the problem. The first system, called 'Monitor', enables companies that have subscribed at nominal cost to this service to be notified by email of documents filed. A copy of the document in question can then be obtained in the usual way. This will not prevent false filings being made, but it does give a company an opportunity to act if necessary.
The second system, called 'Proof', provides added security for companies filing documents using passwords, confidential authentication codes and recognised email addresses. Once subscribed, forms relating to matters such as changes of directors or registered offices can only be filed online, with paper forms being rejected.
While these two services will not eliminate company hijacking altogether, it is hoped that they will give companies the power to reverse this disturbing trend.
Simon Moore, litigation partner, Field Fisher Waterhouse