TTF Blog: 17 July 2021

by Alex Varley-Winter, TTF’s Head of Media Relations & Investigative Reporting

TTF’s founder this month alleged to British lawmakers that a “colossal amount of carnage is being cause by a relatively small number of criminally-minded individuals” in the UK. Repeat scammers, who use a technique called ‘phoenixing’ to evade capture:

“As soon as they start to feel the temperature rise around them they close down shop and reappear somewhere else” Andy Agathangelou testified. “They have in my opinion been running rings around the regulators and enforcement agencies. … One of the most powerful weapons they have is this ability to dissolve their organisation and pop up somewhere else.”

The term ‘phoenixing’ for this dodge-game is very apt, indicating a mythical bird rising again from the ashes. TTF members who are scam victims have been grappling with the reality of this practise for a very long time, and have given evidence to the Government on the same.

Pandemic Panic

So why is the Government only now getting a grip on ‘phoenixing’ – a technique believed to have been used by white collar crime for decades?

In a word: Covid. MPs reported last month that up to £30 billion in fraud or error over the past year was eating into the government’s own coronavirus support scheme. A.k.a. our taxes, hitting Treasury coffers and impacting on public spending.

This experience may have drawn the Treasury’s attention to the fact that anyone – including them – can fall victim to a crime. And how motivating it can be to lose a few £billion. “New powers to tackle unfit directors of dissolved companies” announced the Government in May: “The Insolvency Service will be given powers to investigate directors of companies that have been dissolved, closing a legal loophole and acting as a strong deterrent against the misuse of the dissolution process.”

This is being presented as a crack-down on phoenixing, in other words.

Controversially, though, they are planning to limit the power to a period of three years. This attempted time-limitation on the new powers is a measure that TTF members – many of them targeted by investment scammers – strongly oppose.

As Agathangelou puts it: “Three years is a blink of an eye in this context. … If the objective is to try to clean up our country, then make the timeframe as long as you can.”

Is this a step to ‘clean up our country’? It could be revelatory. But as with every new power, it may rest on what its enforcers – the Insolvency Service – are motivated to care about.

On that count, TTF has concerns. Will fraud alleged by consumers be equally prioritised as alleged scams on the Treasury. And is the Insolvency Service a trusted institution?

TTF urging scrutiny of the Insolvency service

TTF has repeatedly heard  a can of worms alleged when it comes to debts and bankruptcies being validated in the UK. Some of this was publicly aired at TTF’s Symposium on alleged insolvency scamming last month, which you can watch here. Journalists Ian Fraser and Emily Buchanen predicted at the event that the untrammelled power of insolvency practitioners is likely to fall into public scrutiny for the first time this year.

A report by Bill Grimsey, the former boss of Wickes and Iceland this week revealed that about 150,000 small businesses in the UK have collectively racked up £2.3bn in debt. With pandemic-recovery and Brexit-resilience potentially proving impossible for many businesses, the arbiters of bankruptcy could land at the centre of a fray.

I’ve searched for legal comment, BP Collins Solicitors published a commentary on the draft law and its implications for the Insolvency Service:

“[I]t will enable the Government to clamp down on fraudulent directors, and tackle the many instances of ‘bounce back loan’ fraud, whereby directors have simply dissolved their companies in order to avoid repayment of Covid-19 Bounce-Back loans”.

However, it goes well beyond that: “This is significant because any director of a dissolved company now has the potential to be investigated by the Insolvency Service and sanctioned if any evidence is uncovered of malpractice or fraud.”

But a log-jam of cases is unlikely to be shifted any time soon, the lawyers write: “Whilst the Government remains assured that in the long run, this reform will increase efficiency and accountability for UK companies, there will undoubtedly be a large increase in case investigations for the Insolvency Service if the Bill is made law.”

“Coupled with the recent surge in dissolutions as a result of the Covid-19 pandemic, there is also the possibility that the Insolvency Service’s resources will be stretched, thereby undermining the effectiveness of its investigations.”

TTF’s Agathangelou told MPs drafting the new powers that from our perspective, there are even deeper concerns about the enforcer’s fitness.

Insolvency is ‘murky’ anyway to past victims of financial crime:

“There is a pile of evidence suggesting the weaponisation of the insolvency service. … the net result of this is that people have their homes taken away from them or their businesses as a result of engineered bankruptcies,” Agathangelou told MPs. The insolvency service, ‘needs to be opened up and looked into’ – particularly if it is about to be gifted a raft of new powers.

The insolvency abuse outlined to us in the past, while we may hope this is rare, is of white collar criminals targeting wealthy, solvent people and seeking to take control over their assets by fabricating a bankruptcy.

It sounds deeply paranoia-inducing. But at least one case has already been well-documented in the press:

In depth: how a con-artist can exploit every loophole

British-Iranian academic Dr Sheida Oraki is a reported victim of well-heeled conman Sharokh Mireskandari. Her case is one of very few fake bankruptcies that I have observed being challenged in court. Her years mired in litigation now span almost two decades, seeking to reverse herself and her husband’s bankruptcy and wrest control from its trustees. 

Being rendered falsely bankrupt was apparently sprung on her by Mireskandari, as a perceived punishment for reporting him to the Law Society, in the mid-’00s. He was later exposed by Mail investigative journalists for having no legitimate legal qualifications being struck off the UK Solicitor’s Roll in 2012. The SDT’s judgment against him covers counts of dishonesty towards clients spanning many years.

That bold 2008 investigation of Mireskandari, which quoted Dr Oraki, saw the Daily Mail shortlisted in Private Eye’s Paul Foot awards for its investigative reporting. Nevertheless, the plight of two of his victims is embedded in our justice system,  unresolved to this day.

Dr Oraki believed that the hounding of her was purely aimed to punish herself and her husband for dobbing in Mireskandari to legal services watchdogs in the early 00’s.

Like many of these battles it started shockingly small: In 2003, they told the Law Society that their purported lawyer had double-billed them £1000. Dr Oraki recalled in court that he then threatened them, that if they did not withdraw their complaint he would make them bankrupt and strip them of all their assets.

The Orakis’ purported legal costs for repeatedly appealing, challenging, and pleading against the bankruptcy he secured, now run to more than a £million spanning more than a decade. They have been repeatedly threatened with repossession, and live in as state of perpetual uncertainty as a result.

In 2017, a Deputy High Court judge, Robert Ham QC, even acknowledged: “I am willing to accept that the original judgment was obtained by fraud”. But that, in his view, it would make no difference – the court did not annul the bankruptcies.

This legal intransigence is what people alleging fake debts or, forged documents, repeatedly rail against. Judges also  acknowledged that the Orakis’ situation is ‘kafkaesque‘, yet they have been wading through a legal quagmire for more than a decade.

The Orakis continue to believe that if ‘fraud unravels all’ they should owe a lot less than a £million, and closer to nothing. Having observed Dr Oraki in court, I believe that morally she is right – and has always been right – to refute a bankruptcy allegedly secured by way of a false instrument, and when she was in good financial health.

I do not know what protections being a victim of fraud ought to garner Dr Oraki under the Law – I’m a journalist not a legal scholar. I can only tell you that to observe the case in court feels like watching a glass fall in slow motion, repeatedly.

Having seen the worst that can happen, TTF’s founder and many of our members are hoping that new insolvency powers, if they are passed into law, will be used well and wisely. New powers would, however, need to be extended over a far longer time-scale, and be robustly used if they are to serve most victims. As Agathangelou emphasised to MPs, it should only be the first step.