R v Smith [2025] EWCA Crim 1251 – Sentencing for Fraudulent Removal of Company Assets: Use of Fraud Guidelines, Risk-Based Harm, and the Limited Effect of Restitution and Personal Mitigation

1. Introduction

Case: R v Smith [2025] EWCA Crim 1251
Court: Court of Appeal (Criminal Division), England and Wales
Date: 9 September 2025
Statute Involved: Insolvency Act 1986, s.206(1)(b) and (2)

This decision concerns an appeal against sentence by a 67-year-old company director who admitted five offences of fraudulently removing company property in the context of four insolvent companies. Over several years, the appellant treated company bank accounts, owed overwhelmingly to HMRC and commercial creditors, as a source of funds to feed his gambling at a casino. Although he ultimately repaid all of the monies, his conduct occurred during the critical periods before and after the commencement of winding-up processes.

The sentencing judge, faced with the absence of offence-specific guidelines for offences under s.206 of the Insolvency Act 1986, adopted the Sentencing Council’s guideline for fraud and false accounting by analogy, relying on earlier authority (R v Singh [2018] EWCA Crim 1725). He imposed a total sentence of 28 months’ immediate imprisonment, with concurrent terms on all counts, and a 15-year disqualification from acting as a company director (unchallenged on appeal).

On a renewed application for leave to appeal (after refusal by the single judge), the appellant argued that the sentencing judge had:

• Failed to give sufficient weight to powerful personal mitigation (age, health, caring responsibilities, and exemplary prior character);
• Undervalued the mitigating force of full repayment of all monies; and
• Failed to give adequate credit for his guilty pleas.

The Court of Appeal rejected these arguments and refused leave. In doing so, it reaffirmed and sharpened several important principles in sentencing for economic crime where company officers fraudulently remove assets in the vicinity of insolvency:

• Use of the fraud/false accounting guideline by analogy for s.206 offences;
• Treating “risk of loss” to creditors as serious harm even where loss is ultimately avoided by repayment;
• Recognising that restitution, gambling motivations, caring responsibilities, and positive good character have limited power to displace immediate custody in serious, repeated corporate dishonesty; and
• Affirming a robust deterrent approach to directors who knowingly gamble with creditors’ money.

2. Background and Facts

2.1 The Companies and the Pattern of Conduct

The appellant had a long history of involvement in the construction sector through a series of corporate vehicles. A consistent pattern emerged: companies incurred large debts (especially to HMRC), the appellant structured ownership to conceal his effective control, and he channelled large sums from company accounts to his casino account at Grosvenor Casinos.

(a) Smith Construction Plc (2012) – Prohibited Name Background

In 2012, Smith Construction Plc was wound up. This triggered restrictions under the Insolvency Act (notably the “prohibited name” regime), meaning that for five years the appellant could not use the same or a similar company name without court leave. This prior liquidation and the subsequent use of similar names became later aggravating features.

(b) Eagleport Limited – Counts 1 and 2

• The appellant created Eagleport Limited, installing his wife and mother as formal directors, while he effectively ran the company.
• The company accumulated debts in excess of £500,000 and unpaid taxes of over £145,000.
• In December 2015, the appellant purportedly sold the company for £1, yet retained control of the company bank account.
• HMRC and another creditor petitioned for winding up.
• Over the 12 months before and after the winding-up, the appellant moved a total of £230,810 from the company account to his casino account:
  • £148,650 pre-winding up – Count 1 (s.206(1)(b));
  • £82,160 post-winding up – Count 2 (s.206(1)(b) and (2)).

These transfers funded the appellant’s gambling, using money he knew was owed to HMRC and other creditors.

(c) Smiths Construction Limited – Count 6

• As Eagleport laboured under debt, the appellant created Smiths Construction Limited, with his son as the named director, though he later admitted he was in substance the director.
• Again, the company was sold for £1, but the appellant retained control of the bank account.
• In December 2015, the company went into voluntary liquidation with debts in excess of £1 million, including:
  • £640,000 owed to other companies;
  • HMRC claim of over £700,000 in unpaid tax.
• Between April and 31 October 2015, £110,250 was moved from the company account to the casino account – Count 6.

(d) Smiths Construction Services Limited – Count 8

• The appellant then operated Smiths Construction Services Limited, again with his sons as nominal directors but with him making the decisions.
• On winding up, creditors were owed around £1 million and HMRC claims totalled approximately £2.8 million.
• In the seven months prior to the winding up, £84,600 was transferred from the company’s account to his casino account – Count 8.

(e) Smiths Construction Specialists Limited – Count 10

• The final company was Smiths Construction Specialists Limited.
• A winding-up petition was presented on 30 October 2017, at which time the company had no assets and debts of around £622,000, including approximately £500,000 due to HMRC.
• After the winding-up petition was filed, the appellant withdrew £276,390 from the company to his casino account – Count 10.

This company also stands out for two additional aggravating features:

• In March 2017, the appellant had been declared bankrupt and was therefore automatically disqualified from acting as a director;
• He was further disqualified from being a director by order of Nottingham County Court, yet continued to act as a de facto director for around three months thereafter.

2.2 Overall Financial Picture and Repayment

In total, across the four companies, the appellant removed £702,050 during the relevant winding-up periods. Crucially:

• It was accepted by the Crown that all of this money was repaid by the appellant;
• The appellant’s case was that he was a “good gambler” who believed he could win and service the companies’ debts.

The trial judge accepted that in fact he did win and did repay. However, he described this as a matter of “luck, nothing more than that”, and emphasised that the appellant had risked money that was owed to others on “the toss of a coin”.

3. The Sentencing at First Instance

3.1 Judge’s Overall Assessment

The sentencing judge identified the appellant’s gambling as being at the root of the offending, but emphasised that the key wrong was not gambling per se, but the decision to gamble with money that:

• Was not his own;
• Was owed to creditors and HMRC; and
• Was removed at a time when the companies were failing and in (or approaching) insolvency.

The judge described the conduct as “reckless” and stressed the repeated nature of the behaviour across four companies, and the continuation of such behaviour even after bankruptcy and disqualification from acting as a director.

3.2 Use of Analogous Sentencing Guidelines

There are no dedicated Sentencing Council guidelines for offences under s.206 of the Insolvency Act. Consistently with R v Singh [2018] EWCA Crim 1725, the judge therefore:

• Adopted the fraud and false accounting guideline as an analogical framework; and
• Adjusted for the fact that the maximum sentence for s.206 offences is 7 years’ imprisonment, compared to 10 years for many fraud offences (though false accounting also carries a 7-year maximum).

He treated count 10 (Smiths Construction Specialists Limited) as the lead offence, with concurrent sentences on the remaining counts.

3.3 Culpability and Harm Assessment

Applying the fraud guideline, the judge found:

• Culpability: High – due to:
  • The extended period of offending;
  • The deliberate and repeated conduct;
  • The exploitation of multiple companies and numerous creditors;
  • The knowing breach of bankruptcy and disqualification restrictions.
• Harm: Category A2 – because:
  • The quantum involved was very substantial;
  • There was a risk of very substantial loss to creditors and HMRC;
  • However, no actual loss ultimately crystallised because the appellant repaid the sums.

The judge specifically adjusted the harm assessment from Category 1 to Category 2 on the basis that there had been a risk of loss rather than actual loss. Under the guideline, Category A2 had:

• A starting point of 4 years’ custody; and
• A range of 2½ to 5 years’ custody.

3.4 Aggravating Factors

The following were identified as aggravating:

• Persistence despite bankruptcy and disqualification – continuing as a director without leave of the court after bankruptcy and after a specific disqualification order;
• Use of a prohibited company name or similar name following the 2012 winding up of Smith Construction Plc, without court leave;
• Deficient company records, complicating proper scrutiny and accountability.

3.5 Mitigating Factors

The judge accepted there was “very real mitigation”:

• Full repayment of all sums removed;
• Previous good character – no prior convictions or cautions;
• Positive good character – numerous references attesting to significant contributions to the community;
• His role as a carer for his wife, who suffered from “a particularly cruel and debilitating illness”;
• His own health problems;
• Delay in proceedings, albeit partly attributable to his choice to contest the matter and to an abortive trial before pleas were eventually entered.

3.6 Calibration of Sentence

The judge followed a structured approach:

1. For a fully contested case at trial, with the culpability and harm found, but before mitigation, a sentence in the region of 5 years’ imprisonment was appropriate.
2. Repayment of all sums was given substantial weight, reducing the notional sentence to about 3½ years.
3. Personal mitigation (good character, caring responsibilities, health) produced a further reduction to 2½ years’ imprisonment (30 months).
4. A further reduction of approximately 5% for the guilty plea yielded the final sentence of 28 months’ imprisonment.

The judge noted explicitly that:

• A sentence of 28 months is above the 2-year ceiling for a suspended sentence; and
• Even if the sentence could notionally have been brought within the suspendable range, he would not have suspended it because:

  “the offending was so serious, repeated … over four different companies, and over a period of time, that there has to be a deterrent impact, and only immediate custody can be justified”.

4. Grounds of Appeal and the Court’s Decision

4.1 Grounds Advanced on Renewal

On the renewed application, new counsel (Mr Benson) argued that:

1. The judge undervalued the applicant’s exceptional mitigation, including:
   • His role as a carer for his seriously ill wife;
   • His own health issues;
   • Extensive evidence of positive good character and community contribution.
2. The judge gave insufficient weight to full repayment of all monies, emphasising that:
   • The crucial factor was the appellant’s intention to repay;
   • It should not matter, for mitigation purposes, that he obtained the funds to repay via gambling.
3. The judge undervalued the appropriate discount for the guilty plea.

4.2 The Court of Appeal’s Conclusion

The Court of Appeal firmly rejected the challenge and refused the renewed application. It held:

• This was serious, prolonged offending, aptly summarised by the sentencing judge:

  “This was intentional fraudulent activity which risked monies [the applicant] was not entitled to. It continued over a considerable period of time. It was not a one-off, it involved four different companies.”

• Mr Benson did not challenge the judge’s reliance on Category A2 of the fraud guideline.
• He did not identify any mitigating factor that the judge had failed to consider.
• The final sentence for each count sat at the bottom of the Category A2 range even before the guilty plea reduction.
• The judge properly applied the guilty plea guideline and, in the Court’s view, gave credit of somewhat more than 5%, appropriate for a very late plea.

The Court concluded that the judge’s approach was “faultless” and that “only an immediate sentence of imprisonment was justified for such repeated, serious offending.”

5. Precedents and Authorities Considered

5.1 R v Singh [2018] EWCA Crim 1725 – Analogous Use of Fraud Guidelines

The judgment explicitly refers to R v Singh as authority for the practice of deploying the fraud and false accounting guideline as an analogical tool in sentencing offences under s.206 of the Insolvency Act 1986.

Singh established, in essence, that when:

• There is no offence-specific guideline; and
• There is an offence of broadly comparable nature and seriousness (here, dishonesty-based economic crime involving abuse of trust and financial loss or risk),

it is legitimate and often desirable for sentencing judges to:

• Use the structure and ranges from the nearest suitable guideline (fraud/false accounting);
• Adjust the sentence to take into account any differences in:
  • Statutory maximum penalty;
  • Typical factual patterns; and
  • Policy considerations particular to the offence.

In Smith, the Court of Appeal confirms that this analogical use of the fraud guideline remains appropriate for fraudulent removal of assets in anticipation of, or after, winding up.

5.2 R v Ali and R v Manning – Personal Mitigation and Impact on Others

The sentencing judge also referred to the Court’s observations in R v Ali and R v Manning. While the present judgment does not set out their details, these cases are well-known for emphasising that:

• The personal circumstances of the offender (e.g. health, caring responsibilities) and the impact of custody on dependants are relevant mitigating factors;
• However, the weight to be accorded to such factors is constrained by:
  • The seriousness of the offence;
  • The need for public confidence in the justice system; and
  • The imperative of deterrence, particularly in serious economic crime.

By expressly saying he bore these authorities in mind, the judge demonstrated that he did not overlook the appellant’s powerful mitigation – he simply concluded (and the Court of Appeal agreed) that the case remained too serious, and too significant in deterrent terms, to justify a non-custodial or suspended sentence.

6. Analysis of the Court’s Legal Reasoning

6.1 Use of the Fraud / False Accounting Guideline for s.206 Offences

The Court’s reasoning consolidates the emerging practice for sentencing under s.206 Insolvency Act:

• No specific guideline exists for fraudulent removal of property in insolvency;
• Nonetheless, the nature of the offence – dishonesty, abuse of a corporate office, financial risk to creditors – is closely analogous to serious fraud and false accounting;
• Accordingly, the fraud and false accounting guideline provides:
  • A familiar harm–culpability framework (Categories A/B/C and 1/2/3);
  • Structured starting points and sentencing ranges;
  • A principled way to factor in abuse of trust, sophistication, duration, and risk of loss.

The judge properly adjusted for the lower statutory maximum of 7 years for s.206 offences, compared to 10 years for many fraud offences. The Court of Appeal saw no error in this approach and endorsed it as wholly appropriate.

6.2 High Culpability Despite a “Rescue” Rationale and Gambling Addiction

The appellant argued that his intention was to “save” the companies by winning at gambling and then repaying their debts. The judge accepted this intention as a matter of fact, and accepted that he did win and did repay. However:

• The crucial point was that he:
  • Knew the money was owed to others (creditors and HMRC);
  • Deliberately appropriated it for high-risk personal gambling;
  • Repeated this over a substantial period and across four companies;
  • Continued it even after being bankrupt and disqualified.

On any rational view, this represents high culpability. The Court’s endorsement of the judge’s finding of high culpability underscores that:

• A supposed “good faith” belief in one’s own ability to win at gambling and repay creditors does not lessen culpability where others’ money is risked without consent;
• Gambling addiction or compulsion, even if genuine, does not transform sustained, deliberate dishonesty into low culpability conduct.

6.3 Harm as “Risk of Loss” and Its Seriousness

A central question for sentencing was whether the ultimate full repayment of £702,050 fundamentally changed the seriousness of the offending. The Court’s analysis shows that:

• Repayment does affect harm categorisation: the judge moved from Category 1 (substantial actual loss) to Category 2 (substantial risk of loss);
• However, the risk of catastrophic loss to multiple creditors and HMRC over a prolonged period remains very serious harm in its own right;
• The companies were already in severe financial distress; had the appellant lost instead of won, the consequences for creditors would have been irreversible.

The key message is that economic crime is not neutralised by later repayment. Risking large sums owed to others, on the basis of personal gambling, is gravely harmful even if pure luck prevents loss from materialising.

6.4 Treatment of Restitution

The Court clearly accepted that restitution remains a powerful mitigating factor in economic crime:

• It was the primary reason the notional starting point dropped from about 5 years to 3½ years;
• Coupled with personal mitigation, it brought the sentence down to 2½ years before plea discount.

However, the Court implicitly rejects the notion that:

• Full repayment automatically converts serious custodial offences into suspendable or non-custodial territory; or
• Repayment funded by further risky or dubious conduct (here, gambling) can command the same credit as prompt, responsible restitution made from legitimate income or assets.

In short, restitution is important but not decisive. It reduces harm and merits substantial reduction of the sentence, but does not override the need for immediate imprisonment in cases of serious, repeated, high-culpability fraud.

6.5 Personal Mitigation and the Limits of Compassion in Serious Economic Crime

The appellant’s personal mitigation was unusually strong:

• Age (67);
• Serious health problems; and
• Ongoing role as primary carer for a wife with a particularly cruel, debilitating illness;
• Exemplary prior and positive good character, with demonstrable community contributions.

The judge and the Court of Appeal explicitly recognised this mitigation and yet held it insufficient to avoid immediate custody. This reflects two settled principles:

1. The more serious the offence, the less weight personal mitigation can carry.
   Where offences involve substantial dishonesty, abuse of trust, and risk to creditors and the public purse, the starting point is that custody is inevitable. Mitigation may reduce the length, but rarely the fact, of imprisonment.
2. Personal hardship and hardship to dependants is relevant but not determinative.
   As cases like Ali and Manning make clear, the impact of a sentence on others is a factor, but only in truly exceptional circumstances will it justify departing wholly from a custodial sentence where otherwise required.

Here, the repeated nature of the offending, the large sums involved, the conscious flouting of insolvency restrictions, and the need for deterrence in corporate governance outweighed even significant compassionate considerations.

6.6 Guilty Plea Credit

The appellant complained that his credit for the guilty plea was inadequate. The Court of Appeal noted that:

• The plea came late, after an abortive trial and significant contested preparation;
• The judge correctly applied the guilty plea guideline, which envisages:
  • Maximum credit of one-third only for very early pleas (usually at the first hearing);
  • Progressively diminishing credit the later the plea is entered;
  • Very limited credit (around 5–10%) for pleas entered at or shortly before trial.

The Court concluded that the discount given – described as "somewhat more than 5%" – was faithful to the guideline and not manifestly inadequate.

6.7 Refusal to Suspend: Deterrence and Public Confidence

The judge’s statement that even a suspendable sentence would not have been suspended, because “only immediate custody can be justified”, is endorsed by the Court of Appeal. This reflects:

• A strong public interest in deterrence of dishonest conduct in the insolvency context;
• The need to uphold the integrity of the corporate and insolvency regimes;
• The serious impact on HMRC and general taxpayers when large tax debts are imperilled by fraudulent withdrawals.

The message is that those who use companies as vehicles to gamble with creditors’ money can expect immediate custody in serious cases, even with significant mitigation.

7. Impact and Significance of the Judgment

7.1 Consolidated Approach to Sentencing under s.206 Insolvency Act 1986

Smith reaffirms and consolidates a practical sentencing framework for s.206 offences:

• The fraud / false accounting guideline is the proper analogical tool;
• Sentencers should:
  • Assess culpability (e.g. abuse of position, duration, planning, number of companies / victims);
  • Assess harm in terms of:
    • Actual financial loss; and/or
    • Risk of loss, particularly where insolvency is looming;
  • Adjust for the 7-year maximum under the Insolvency Act.

For practitioners, the case provides a clear template: a serious, multi-company, high-culpability pattern with substantial sums at risk is likely to be placed in the upper harm/culpability brackets, leading to significant immediate custody.

7.2 Risk-Based Harm and the Limits of “No Loss” Arguments

The decision is particularly important for the treatment of cases where:

• Large sums are dishonestly removed from companies;
• But full repayment ultimately occurs and creditors suffer no quantifiable loss.

The Court underlines that:

• Risk of substantial loss is itself a serious harm factor;
• Directors cannot shield themselves from severe sentences by saying:

  “I meant to pay it back and in the end I did.”

This is especially salient for insolvency and tax-related offences where the amounts involved can be very large and the consequences for the public finances acute.

7.3 Directors, Shadow Directors, and Disqualification

The case also sends a clear message about:

• Using family members as nominal directors while remaining the de facto controlling mind;
• Continuing to act as a director in breach of automatic bankruptcy disqualification or a formal disqualification order;
• Operating with prohibited or similar company names following previous insolvency events.

Such conduct will be treated as serious aggravation. It demonstrates a conscious willingness to subvert company law protections and will significantly increase custodial terms.

7.4 Gambling and Economic Crime

Finally, the case has broader relevance where economic crime is driven by gambling:

• Gambling addiction, while relevant to understanding why the crime occurred, does not greatly reduce culpability where the offender deliberately uses others’ money to gamble;
• Self-belief in being a “good gambler” is legally irrelevant once the individual knowingly risks creditors’ funds; and
• Courts are likely to see such behaviour as intentional fraudulent activity, even if subjectively framed by the offender as an attempted “rescue” of the business.

8. Key Legal Concepts Explained

8.1 Fraudulent Removal of Property in the Context of Winding Up

Section 206(1)(b) of the Insolvency Act 1986 makes it an offence for any officer or contributory of a company to fraudulently remove any part of the company’s property within a specified period:

• Typically in the 12 months before the presentation of a winding-up petition; or
• After the commencement of the winding up.

Under s.206(2), further liability arises when the conduct continues after the commencement of winding up. The offence targets the practice of asset-stripping or concealment to the detriment of creditors, often in the “twilight period” before formal insolvency.

8.2 Winding Up and “Commencement”

Winding up is the process by which a company’s affairs are wound down, its assets realised, and its debts paid in a prescribed order. It can be:

• Compulsory – by court order, typically on a creditor’s petition (e.g. HMRC);
• Voluntary – initiated by the company’s members or creditors.

The “commencement” of winding up is a technical concept:

• For compulsory winding up, it usually dates back to the presentation of the petition;
• For voluntary winding up, it starts when a resolution to wind up is passed.

Conduct before and after this date can both fall within s.206, but are differentiated in charging and sentencing. In Smith, counts covered both the pre-commencement and post-commencement periods.

8.3 Director Disqualification and Prohibited Names

Following bankruptcy or specific court orders, individuals may be disqualified from acting as company directors under the Company Directors Disqualification Act 1986 and related legislation.

• Automatic disqualification arises on bankruptcy;
• Disqualification orders may be made where directors have behaved improperly;
• The Insolvency Act’s prohibited name provisions restrict the use of the same or a substantially similar company name for a period after liquidation, absent court permission.

Breaching these restrictions is both a separate offence and a serious aggravating factor in sentencing for related dishonesty offences, as seen in Smith.

8.4 Sentencing Guidelines: Culpability and Harm

The Sentencing Council’s fraud guideline uses a matrix of:

• Culpability (A, B, C – high to low) – based on factors such as:
  • Role in the offence;
  • Planning and sophistication;
  • Abuse of a position of trust;
  • Duration and number of victims.
• Harm (Categories 1–5 or similar) – based on:
  • Value of the actual loss; and/or
  • Value of the funds placed at risk of loss.

The combination (e.g. Category A2) sets a starting point and a sentencing range. Judges then adjust within that range for aggravation, mitigation, and overall justice, and then apply a guilty plea discount.

8.5 Lead Offence and Concurrent Sentences

Where multiple offences form part of a single course of conduct, courts often:

• Select a “lead offence” (usually the gravest count) and set the headline sentence there;
• Impose concurrent sentences on other counts, so that the total period in custody reflects the overall criminality without simple arithmetic accumulation.

In Smith, count 10 was treated as the lead offence, with concurrent shorter terms (12 months) on the other counts.

8.6 Immediate Custody vs Suspended Sentence

In England and Wales:

• Sentences of 2 years or less may be suspended, if appropriate;
• Sentences above 2 years cannot be suspended.

Even for sentences within the suspendable range, the court must consider:

• Whether the offence is so serious that only immediate custody will suffice;
• Whether the purposes of sentencing (punishment, deterrence, public protection, rehabilitation) can be met without immediate imprisonment.

In Smith, the judge concluded – and the Court of Appeal agreed – that the offending was too serious, and too important from a deterrent standpoint, to warrant suspension under any scenario.

9. Conclusion

R v Smith [2025] EWCA Crim 1251 offers a clear and robust statement of the approach to be taken in sentencing company officers who fraudulently remove assets in the context of insolvency proceedings. Its key contributions are:

• Confirming that fraud and false accounting guidelines are the appropriate analogical framework for s.206 Insolvency Act offences, with adjustment for the 7-year maximum;
• Emphasising that risk of loss to creditors and HMRC remains a serious harm factor even where later repayment prevents actual loss;
• Reinforcing that:
  • Full restitution, while substantially mitigating, does not obviate the need for significant custody in serious, repeated, high-culpability cases;
  • Gambling motivations and beliefs in one’s skill, even coupled with successful repayment, do not materially reduce culpability where others’ money is placed at risk;
  • Even powerful personal mitigation – age, ill-health, caring responsibilities, and glowing character – will rarely justify a non-custodial outcome for such offending.
• Affirming a strong stance on deterrence and the protection of the integrity of the insolvency and company law regimes, particularly where directors flout disqualification orders and manipulate family members as nominal directors.

The Court of Appeal’s refusal of leave confirms that a total sentence of 28 months’ immediate imprisonment, positioned at the bottom of the relevant guideline range before plea discount, was neither wrong in principle nor manifestly excessive. For practitioners and company officers alike, Smith stands as a warning that dishonestly treating company funds as personal gambling capital, particularly in the shadow of insolvency, will be met with firm custodial sanctions, irrespective of subsequent repayment or personal hardship.