These are common terms in the Regulatory sector but directors don’t really expect them to result in a five week criminal trial and the possibility of jail time! This is exactly what happened recently when the Environment Agency (the Agency) prosecuted three former directors of a waste business for causing substantial pollution.
The prosecution followed two huge fires at the company’s premises in 2012 and 2013 which caused the local town to come to a standstill for several days. The company became insolvent in 2013 as a result of the second fire.
The Agency relentlessly pursued the directors with several years of intrusive investigations which quite literally put every decision of the board under scrutiny. The non-executive investor-directors also came under scrutiny and one was even interviewed under caution. The Agency alleged that each of the directors had caused the corporate offences through their consent, neglect or connivance. The directors who ended up in the dock facing serious criminal charges were the chairman, the managing director and the finance director. The threshold for what is consent, neglect or connivance is different in each case, but is relatively low overall. The Agency tried to argue that mere knowledge by a director of permit breaches was sufficient to amount to a personal offence and lack of knowledge was an indicator of neglect sufficient for a personal offence.
Ramifications for the directors
Apart from the enormous emotional and financial impact of fighting an investigation and prosecution of this magnitude, a conviction would have had a significant impact on the future for each of those individuals. Firstly, a custodial sentence was a very likely outcome. Secondly, the Agency was aiming for the directors to be disqualified from operating businesses in the future (which would have killed their current companies and ruined their employment prospects). Thirdly, the Agency was looking to recover the full cost of the investigation and clean-up operations as well as the costs of the trial, which would have been a staggering amount. Bankruptcy was also a likely outcome for all three directors.
What happened at court?
On the first day of trial, two of the directors changed their pleas to guilty following an indication from the judge that he would not give immediate custodial sentences, but would suspend any term of imprisonment. Our client did not change his plea and proceeded to trial. By not changing his plea, he lost the possibility of any reduction in his sentence so it became genuinely nerve wracking for him. Following more than 20 prosecution witnesses, seven experts and 24 hours of jury deliberations over five long weeks, the jury returned a not guilty verdict on all counts. Our client was acquitted and will no longer face the disastrous ramifications. It is a brilliant result following a long, painstaking case that began in 2013 and required a skilled defence team. Needless to say, our client was delighted and rather relieved.
Consent, neglect and connivance make business risk a personal risk for directors
This case demonstrates the willingness of regulators to look at individual directors in the context of corporate offences to see if they can make a case against the people making business decisions. Gateley’s Regulatory team are seeing this trend across all regulators but particularly in those relating to the police, health and safety regulations and environmental regulations. The message to office holders is clear, the regulators will come after you personally given half a chance, and particularly if your business commits offences on your watch. Business risk now represents personal risk for directors.
This blog post was written by Ruth Armstrong, partner, Regulatory Unit